Pennsylvania v. Surface Transportation Board

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
5-17-2002
Comm of PA v. Surface Transp Bd
Precedential or Non-Precedential: Precedential
Docket No. 01-3685
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2002
Recommended Citation
"Comm of PA v. Surface Transp Bd" (2002). 2002 Decisions. Paper 281.
http://digitalcommons.law.villanova.edu/thirdcircuit_2002/281
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2002 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
PRECEDENTIAL
Filed May 17, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-3685
THE COMMONWEALTH OF PENNSYLVANIA
and SENATOR ARLEN SPECTER,
Petitioners
v.
SURFACE TRANSPORTATION BOARD
and UNITED STATES OF AMERICA,
Respondents
*Norfolk Southern Corporation and
Norfolk Southern Railway Company,
Intervenors/Respondents
*Transport Workers Union of America, National
Conference of Firemen and Oilers/SEIU,
International Association of Machinists &
Aerospace Workers, International Brotherhood
of Boilermakers and Blacksmiths, International
Brotherhood of Electrical Workers, Sheet Metal
Workers’ International Association, and
Transportation Communications International
Union,
Intervenors/Petitioners
*(Pursuant to Court Order dated 11/2/01)
On Petition for Review of An Order of
The Surface Transportation Board
(No. 33388)
Argued February 5, 2002
Before: SLOVITER and AMBRO, Circuit Judges,
and POLLAK, District Judge**
(Filed: May 17, 2002)
Scott N. Stone (Argued)
Patton Boggs
Washington, D.C. 20037
Attorney for Petitioner
Commonwealth of Pennsylvania
Arlen Specter (Argued)
United States Senator
United States Senate
Washington, D.C. 20510
Attorney for Petitioner
Arlen Specter
Theodore K. Kalick (Argued)
Ellen D. Hanson
General Counsel
Craig M. Keats
Deputy General Counsel
Surface Transportation Board
Office of General Counsel
Washington, D.C. 20423
_________________________________________________________________
** Hon. Louis H. Pollak, Senior United States District Judge for the
Eastern District of Pennsylvania, sitting by designation.
2
John P. Fonte
Robert B. Nicholson
Charles A. James
Assistant Attorney General
United States Department of Justice
Antitrust Division
Washington, D.C. 20530
Attorneys for Respondents
Surface Transportation Board and
United States
Carter G. Phillips (Argued)
G. Paul Moates
Jeffrey S. Berlin
Virginia A. Seitz
Sidley Austin Brown & Wood
Washington, D.C. 20005
Richard A. Allen
Scott M. Zimmerman
Adam F. Hulbig
Zuckert, Scoutt & Rasenberger
Washington, D.C. 20006
J. Gary Lane
Henry D. Light
Joseph C. Dimino
George A. Aspartore
Jeffrey H. Burton
John V. Edwards
Norfolk Southern Corporation
Norfolk, Virginia 23510
Attorneys for Norfolk Southern
Corporation and Norfolk Southern
Railway Company,
Intervenors/Respondents
Richard S. Edelman (Argued)
O’Donnell, Schwartz & Anderson
Washington, D.C. 20036
Attorney for the Unions
Intervenors/Petitioners
3
OPINION OF THE COURT
SLOVITER, Circuit Judge:
The Commonwealth of Pennsylvania and Arlen Specter,
one of the United States Senators from Pennsylvania, joined
by various interested unions,1 petition this court for review
of the decision of the Surface Transportation Board ("STB"
or "Board") rejecting their petition to cancel the planned
shutdown by Norfolk Southern ("NS")2 of its Hollidaysburg
Car Shops ("HCS") located outside Altoona, Pa.
Before the Board, petitioners relied primarily on the
representations condition that the Board had imposed on
NS requiring it to "adhere to all of the representations" NS
had made during the course of the proceeding by which it
received approval to acquire Conrail properties, including
the HCS. It will be evident to anyone who reviews the
record that in the course of seeking the Board’s approval of
NS’s acquisition of a portion of Conrail, which included the
Hollidaysburg Car Shops, NS had represented before the
Board and to various affected constituencies that it would
keep the HCS open, that as a result NS was able to garner
support from the Commonwealth, Senator Specter and
others, that these supporters understood that the HCS
would remain operational for more than two years, but that
NS announced plans to close the HCS in less than that
time, and that only the stay imposed by this court pending
decision on this petition for review has kept the HCS open.
Although the Board found that NS had represented that
"the heavy repair shop at Hollidaysburg would continue to
be utilized," the Board declined to cancel the shutdown,
_________________________________________________________________
1. The intervening unions are Transport Workers Union of America,
National Conference of Firemen and Oilers/SEIU, International
Association of Machinists and Aerospace Workers, International
Brotherhood of Boilermakers and Blacksmiths, International
Brotherhood of Electrical Workers, Sheet Metal Workers’ International
Association, and Transportation Communications International Union.
2. Norfolk Southern Corporation and Norfolk Southern Railway Company
participated as intervenors in this appeal.
4
concluding that NS’s representations did not require
continued operation in the face of "deteriorating economic
conditions." It is from this order that petitioners seek
review. We regret that on this record this court is powerless
to grant the petitions.
I.
FACTS & PROCEDURAL POSTURE
The Surface Transportation Board is the independent
federal agency established by Congress within the
Department of Transportation and has the responsibility for
the economic regulation of the country’s railroads. 3 The
Board has exclusive authority over the approval and
supervision of railroad mergers. See, e.g., 49 U.S.C.
S 11321 (2001); Union R.R. v. United Steelworkers of
America, 242 F.3d 458, 466 (3d Cir. 2001).
Congress has prescribed a number of factors for the
Board to consider in the exercise of its authority to approve
mergers. Those factors include the merger’s effect on the
adequacy of transportation available to the public, the
impact on the public interest of the inclusion or exclusion
of other carriers, the total fixed charges from the merger,
the interest of the railroad employees affected by the
merger, and the effect of the merger on competition
between rail carriers. 49 U.S.C. S 11324(b). Thus it was to
the Board that the prospective acquirers of Conrail looked
for ultimate approval.
Initially, two railroad companies, Norfolk Southern
Corporation and Norfolk Southern Railway Company
_________________________________________________________________
3. See Marshall J. Breger & Gary J. Edles, Established by Practice: The
Theory and Operation of Independent Federal Agencies , 52 Admin. L.
Rev. 1111, 1288 (2000) (citing 49 U.S.C. SS 701-706, 721-27 (Supp. IV
1998)). "The STB is the successor agency to the Interstate Commerce
Commission (ICC), which was abolished by Congress in 1995. That act
also established the STB, and provided that it would perform all the
functions that previously were performed by the ICC as of the effective
date of the act." Friends of the Atglen-Susquehanna Trail, Inc. v. Surface
Transp. Bd., 252 F.3d 246, 250 n.1 (3d Cir. 2001) (citations omitted).
5
(collectively "NS") and CSX Corporation and CSX
Transportation, Inc. (collectively CSX), had battled over the
extent to which either entity would acquire Conrail, with
each company publicly insisting its acquisition of Conrail
would better serve the interests of influential
constituencies. For example, both CSX and NS suggested
they would consider moving their headquarters to
Philadelphia. Henry J. Holcomb, Norfolk Southern Launches
Hostile Bid for Conrail, Phila. Inquirer, Oct. 24, 1996.
According to commentators, winning the congressional
support of the Pennsylvania delegation was a key
component of NS’s strategy. See, e.g., Don Phillips, Norfolk
Southern Tops CSX’s Bid for Conrail; $9.1 Billion Offer is
Likely to Start a Messy Battle, Wash. Post, Oct. 24, 1996,
at E1. Bud Shuster, Altoona’s U.S. Congressman, and
then-chairman of the House Transportation and
Infrastructure Committee, announced he would "launch[ ] a
‘bloody, bruising legislative battle’ if need be to protect the
1,300 jobs [at Conrail’s Altoona-area shops]." Tom Gibb,
Bud Shuster Vows to Fight to Protect Railroad Jobs ,
Pittsburgh Post-Gazette, Nov. 2, 1996, at C-5.
During this period and after it joined forces with CSX to
seek approval of the Conrail transaction, NS made a
number of representations regarding the Hollidaysburg Car
Shops, located near Altoona, Pennsylvania. NS’s CEO,
David Goode, publicly stated that "Conrail’s locomotive and
car repair shops, which make up the lion’s share of the
economy of Altoona, Pa., would grow under Norfolk
Southern." Holcomb, supra. NS bought advertising in the
New York Times representing that "Norfolk Southern is
committed to continuing to operate Conrail’s Hollidaysburg
Car Shop . . . and will promote employment there." App. at
358. NS issued a press release to the same effect. In a fact
sheet issued around the time NS filed its Conrail
application, NS indicated its intent to invest an
" ‘[e]stimated $4 million in capital improvements at [the]
Hollidaysburg shop.’ " CSX Transp. & CSX Transp., Inc.,
STB Fin. Docket No. 33388, slip op. at 5 (STB May 21,
2001) (hereinafter Decision No. 186) (alterations in original).
However, when Goode testified before a subcommittee of
the U.S. Senate’s Committee on Appropriations, he stated
6
only that "we are in a position of not only being able to give
assurances that we will keep [the Hollidaysburg and
Altoona shops] and keep them operating, we are going to
need them." Conrail Merger Implications: Hearing Before a
Subcomm. of the Senate Comm. on Appropriations, 105th
Cong. 49 (1998) (statement of David R. Goode, President
and CEO, Norfolk Southern). But then-influential
Representative Shuster reported that he had received
"strong verbal reassurances that the [Altoona-area] shops
will remain . . . at least at the current level." Gibb, supra.
In its application before the STB, NS observed that the
Altoona/Hollidaysburg shops were "excellent,"while NS’s
comparable facilities are in Roanoke, Virginia." App. at 378.
According to NS, "important efficiencies can be gained by
concentrating different types of mechanical work at each
location." Id. NS concluded by noting that " ‘insourcing’
provides another opportunity to maximize utilization of the
system shops at Altoona/Hollidaysburg and Roanoke. .. .
CSX plans to use NS’s services at Altoona/Hollidaysburg
for at least a portion of its Conrail car and locomotive
fleets." Id. NS indicated it would market the services offered
by the HCS in order to expand the opportunities there.
Decision No. 186, slip op. at 5. In the operating plan NS
submitted as part of the merger approval process, NS again
represented it would invest four million dollars in capital
improvements to the HCS.
Representative Shuster, Pennsylvania’s then-Governor
Ridge, and the Pennsylvania Senate and House
Transportation Committees all expressed support for NS’s
acquisition of Conrail, explicitly founding their support on
the representations made by NS regarding the
Hollidaysburg shop. Decision No. 186, slip op. at 6; CSX
Transp. & CSX Transp., Inc., 3 S.T.B. 196 (Decision No. 89)
Appendix K, slip op. at 321 (July 20, 1998) (hereinafter
Decision No. 89). On July 20, 1998, the STB approved the
acquisition and division of Conrail by NS and CSX.
The Board "approv[ed] the primary application in its
entirety," Decision No. 89, slip op. at 17, observing the
application was "endorsed by more than 2,700 parties,
including more than 2,200 shippers, more than 350 public
officials, and more than 80 railroads," id. at 12. The Board
7
found that the merger, as conditioned by its decision
approving the transaction, "is consistent with the public
interest; (b) . . . the . . . transaction will not adversely affect
the adequacy of transportation to the public; (c) . . . failure
to include other railroads will not adversely affect the
public interest; . . . [and] (e) . . . the interests of employees
affected by the proposed transaction do not make such
transaction inconsistent with the public interest, and any
adverse effect will be adequately addressed by the
conditions imposed." Id. at 166.
The statute gives the Board the authority to "impose
conditions governing" merger authorizations. 49 U.S.C.
S 11324(c). The Board has "extraordinarily broad discretion"
under that section to fashion conditions to such
transactions to ensure that the public interest standard is
satisfied. S. Pac. Transp. Co. v. ICC, 736 F.2d 708, 721
(D.C. Cir. 1984); see also Grainbelt Corp. v. Surface Transp.
Bd., 109 F.3d 794, 798 (D.C. Cir. 1997).
In approving the merger, the Board imposed a number of
conditions on NS and CSX. The condition of relevance here
provided that "Applicants must adhere to all of the
representations they made during the course of this
proceeding, whether or not such representations are
specifically referenced in this decision." Decision No. 89,
slip op. at 176. The Board reiterated this condition a
number of times in its decision. See, e.g., id. at 105
("[Certain parties seeking the imposition of conditions] . . .
ask that we ‘note for the record’ the settlement agreement
they have entered into with NS. As we have noted elsewhere
in this decision, we are requiring applicants to adhere to
any representations made to parties in this case."); id. at 17
n.26 ("CSX and NS have made, both in their written
submissions and also at the oral argument . . . numerous
representations to the effect that certain issues will be
addressed, certain services will be provided, and so on.
Some of these representations are specifically referenced in
this decision; many however, are not specifically referenced.
We think it appropriate to note, and to emphasize, that
CSX and NS will be required to adhere to all of the
representations made on the record during the course of
this proceeding, whether or not such representations are
specifically referenced in this decision.").
8
On June 1, 1999, following the approval by the Board of
the Conrail split, NS began operating various Conrail lines.
In November of 2000, less than a year and a half after it
began operating the HCS, NS announced its intention to
close that facility. Congressman Shuster, who asserted that
he had been given personal assurances by NS that the HCS
would be retained, scheduled hearings on the matter. NS’s
CEO then advised Shuster via letter that it would not
continue with the planned closure. Shortly thereafter, in
January 2001, Shuster resigned, "saying he did not want to
serve after being removed as chairman of the powerful
Transportation Committee because of GOP term limits."
Shuster Name Will Remain in Congress, Lewistown Sentinel
(May 16, 2001), at http://www.lewistownsentinel.com
/news_05161.htm. On February 21, 2001, NS announced
the closure of the HCS, effective approximately September
1, 2001.
Promptly thereafter, the unions and the Commonwealth
of Pennsylvania filed petitions to the Board seeking an
order barring the closure. The Board ultimately issued
three decisions in response to the petitions. First, the
Board issued Decision No. 186 on May 21, 2001, "directing
. . . [NS] to show why the Board should not order NS to
cancel a proposed shut-down of its Hollidaysburg Car
Shops and to keep them open at least at present capacity
for a significant period of time beyond September 1, 2001,
in view of representations made in the Conrail proceeding,
or made elsewhere, upon which involved parties clearly
relied in formulating positions of support for the Conrail
transaction." Decision No. 186, slip op. at 1.
The Board found that NS had "indicated" that"the heavy
repair shop at Hollidaysburg would continue to be utilized."
Id. at 5. According to the Board, "[t]hroughout the course of
the Conrail proceeding, NS indicated on numerous
occasions that it was committed to operating the
Hollidaysburg Car Shops." Id. The Board found that "NS’s
representations vis-a-vis the Hollidaysburg Car Shops were
intended to be relied upon, and were relied upon, in
connection with the positions taken by various parties in
the Conrail proceeding." Id. at 6. Thus, the Board observed,
"in the present circumstances, the customary flexibility that
9
we accord the projections of merger applicants must give
way to the representations by NS to keep the Hollidaysburg
Car Shops open and operating -- statements upon which
people clearly relied in formulating positions of support for
the Conrail transaction." Id. at 7. The Board concluded by
stating that "[t]he Board takes very seriously statements
and comments made by parties in all matters that come
before us. We will continue to be vigilant in doing what we
can to ensure that representations made by parties to our
proceedings are actually honored." Id.
Petitioners rely particularly on the following statements
in Decision No. 186. First, the Board observed,"[w]e agree
that NS never committed to keeping the shops open in
perpetuity, but it is now only 2 years since the date . . . on
which Conrail’s assets were divided between CSX and NS."
Id. at 6. The Board also suggested that the representations
condition would not be waived based on new events that
were foreseeable to NS at the time it made its
representations: "Regarding NS’s claim that it now has
excess freight car repair capacity, if NS does indeed have
excess freight car repair capacity today, this is an excess
that could have been considered in 1997-1998 when
commitments were made." Id. at 6-7.
Commissioner Burkes dissented from the Board’s
decision, complaining that the Board had never before
strictly enforced a "representations condition." Id. at 9.
Commissioner Burkes cited examples where,
notwithstanding a similar condition, the Board had not
required former merger applicants to strictly comply with
their earlier representations to make certain investments.
He noted that the Board encouraged NS to deviate from its
operating plan in Buffalo, New York by changing its
operations there and making the considerably greater
investment of $12 million than that it had originally
anticipated. Indeed, Burkes observed that, in retrospect,
"perhaps, the Board should have only allowed NS to spend
only $8 million in Buffalo and require it to spend $4 million
in Hollidaysburg." Id. In another proceeding, the Board had
not required Union Pacific to make investments it had
represented it would make because the Board "recognized
‘there is no requirement that a merger applicant actually
10
make investments in the exact places or at the precise
dollar amount that it predicts it will spend in its
application.’ " Id.; see also Union Pacific Corp., STB Fin.
Docket No. 32760 (Sub-No. 21), slip op. at 13 (Dec. 13,
2000) (same).
Commissioner Burkes could discern no difference
between the enforcement of investment representations and
the enforcement of a representation to maintain HCS.
Burkes concluded that "strict enforcement of the
‘representations condition’ would be a new standard that
should not be applied retroactively to NS or to any other
railroad. . . . If the Board intends this to be a new standard,
then it should be addressed in our new railroad merger
rules which will be issued shortly by the Board." Decision
No. 186, slip op. at 10.4
Four months later, in Decision No. 198, issued
September 18, 2001, the Board denied the petition to order
NS to keep the HCS open. CSX Transp. & CSX Transp., Inc.,
STB Finance Docket No. 33388, slip op. at 1, (STB Sept.
18, 2001) (hereinafter Decision No. 198). The Board
observed that "deteriorating economic conditions" had
forced NS to scale back its ambitions on a number of
fronts, including a reduction in its dividend for the first
time in its history, a 25% reduction in its management
workforce, and a contraction of its fleet by 12,000 rail cars.
Id. at 2 & n.4. Furthermore, the Board noted NS’s
contention that, when analyzed as a stand-alone facility,
the HCS was losing up to seven million dollars annually. Id.
at 3. Keeping open the HCS might also require NS to shut
down other facilities. "[F]avoring the HCS and its employees
_________________________________________________________________
4. An additional instance, not cited by Commissioner Burkes but pointed
to by the United States in its brief, is the Board’s decision in CSX Corp.
& CSX Transp., Inc., STB Fin. Docket No. 33388, Decision No. 5, 2001
STB LEXIS 67, at *49-50 (STB Feb. 2, 2001). In that Decision, the Board
rejected an objection to CSX’s failure to implement"commitments"
outlined in its operating plan, observing, "The plans . . . are applicants’
best projections regarding what traffic they believe they can profitably
serve. Those operating plans do not provide a basis in and of themselves
for relief at this time." Id. at *49-50. In short, the plans need not be
"enforced without variation." Id. at 49.
11
could work to disfavor other NS employees and locations."
Id. at 7.
On the other hand, the Board observed that NS had
"presented nothing here to change our prior conclusion that
the carrier’s representations both before and during the
merger process could not help but reasonably lead State
and local interests to believe that NS would keep the shops
open and to rely on that commitment in determining how
they participated in the merger process." Id. at 6. In light of
the reliance on NS’s representation to keep the HCS open,
the Board "supplement[ed] the labor protective conditions
. . . imposed in Decision No. 89." Id. at 7.
In its final decision, Decision No. 200, issued on October
4, 2001, the Board rejected the request by the
Commonwealth and the unions for a stay pending judicial
review. CSX Corp. & CSX Transp. Inc., STB Fin. Docket No.
33388, slip op. at 1 (STB Oct. 4, 2001) (hereinafter Decision
No. 200). There, the Board observed that in Decision No.
198, "we . . . determined that NS did not represent that it
would keep the HCS open indefinitely, without regard to
business and economic conditions." Id. at 2.
The petitioners filed this petition for review. They sought,
and we granted, a stay. At NS’s request, we expedited the
proceeding.
II.
JURISDICTION
This court has jurisdiction to review the Board’s
decisions pursuant to 28 U.S.C. S 2342(5) (2001). The
petition for review was timely filed.
III.
DISCUSSION
Petitioners raise two issues in this case. They contend (1)
that the Board’s decision under review was arbitrary and
capricious, and (2) that the Board’s decision was
12
unreasonable and standardless and/or constituted an
abuse of its discretion. The standard of review is
established by the Administrative Procedure Act (APA), 5
U.S.C. S 706(2)(A) (2001), which provides that the reviewing
court shall "hold unlawful and set aside agency action,
findings, and conclusions found to be 2 (A) arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law."
Petitioners do not, nor could they reasonably, argue that
the Board’s decision not to enjoin NS from closing the HCS
is not in accordance with law. Congress committed to the
Board the exclusive authority to approve and authorize
consolidations or mergers of rail carriers, and this authority
encompasses supervision of those mergers. 49 U.S.C.
S 11321.
There is no contention that the Board failed to follow the
required procedures. Instead, petitioners argue that the
Board’s decision was arbitrary and capricious. They list six
reasons why it should be so characterized. They are that
the decision fails to show a rational connection between the
facts found and the choice made, the Board relied on
irrelevant factors, it failed to articulate a standard
governing when railroad merger applicants will be held to
their promises, it failed to explain why the adverse events
cited were not foreseeable, it failed to treat its decision as
to the HCS as a departure from its earlier policy holding NS
and other merging railroads to all of their promises and
representations, and it failed to consider relevant and
important factors.
Where the Board is interpreting and applying conditions
it has promulgated according to its statutory authority, its
action is accorded the highest deference. See, e.g., CSX
Transp., Inc. v. Surface Transp. Bd., 75 F.3d 696, 702 (D.C.
Cir. 1996) ("The [Board]’s decision interpreting the
conditions that it announced in Oregon Short Line is
entitled to considerable deference, ‘even greater deference’
than when an agency interprets a statutory term.") (citation
omitted); Nat’l Motor Freight Traffic Ass’n v. ICC, 590 F.2d
1180, 1184 (D.C. Cir. 1978) ("We accord particular
deference when, as here, the subject of review is the
agency’s interpretation . . . of its own order."). Notably, the
13
Board’s imposition of conditions to mergers has been
characterized as the kind of " ‘judgmental or predictive’
conclusion with respect to which judicial deference to
agency expertise is especially appropriate." S. Pac. Transp.
Co. v. ICC, 736 F.2d 708, 720-21 (D.C. Cir. 1984) (citation
omitted). Given the Board’s "extraordinarily broad
discretion to impose . . . conditions" pursuant to a merger
"the courts have appropriately given the [Board’s] selection
of such conditions great deference." Id. at 721. In
determining whether the Board was arbitrary and
capricious in its interpretation of such a condition, our
review is particularly deferential, implicating, as it does,
both the Board’s expertise in imposing the condition and
our customary deference to an agency’s interpretations of
directives which it has itself promulgated.
It is evident that at the heart of the petitioners’ argument
is their position that the representations condition that the
Board imposed on NS in Decision No. 89 bound NS to the
representations it made to keep the HCS open. Therefore,
before considering the petitioners’ contention that the
Board failed to apply the representations condition, it is
necessary to determine the nature of NS’s representations.
Although the representations condition in Decision No. 89
by its terms covers only "representations made on the
record during the course of this proceeding [the Conrail
acquisition]," neither the Board nor the parties have
suggested that there is a significant distinction between the
on-the-record representations and the representations
made by NS in public statements and advertisements in the
course of its campaign to seek Board approval of the
Conrail acquisition.
Petitioners conceded at oral argument before us that NS
never said that it committed to operate the HCS in
perpetuity. Transcript of Oral Argument February 5, 2002
at 12 (hereinafter Tr.). Nor have they pointed us to any
commitment to operate the HCS for any defined time.
Instead of identifying any specific statement or
representation, petitioners’ counsel referred us to the body
of statements made by NS referred to above. Mr. Edelman,
counsel for the unions, stated:
14
[I]t’s the press release. It’s the statement to Senator
Specter. It’s the statements to the Governor. It’s the
statements to Congressman Shuster. It’s newspaper
ads all over the State that they took out, ["]dear
employees,["] you know.
Tr. at 19.
The Board has accepted both the contentions that NS
made representations and that these representations were
covered by the representations condition that the Board
imposed. In Decision No. 186, which required NS to show
cause why the Board should not cancel the announced
HCS shut-down, the Board referred to "NS’s representations
vis-a-vis the Hollidaysburg Car Shops." However, the Board
did not describe the nature of NS’s representation or "its
commitment" other than in vague terms. For instance, it
observed that "in the present circumstances, the customary
flexibility that we accord the projections of merger
applicants must give way to the representations by NS to
keep the Hollidaysburg Car Shops open and operating ."
Decision No. 186, slip op. at 7 (emphasis added). In
addition, the Board used language that appeared to reject
NS’s proffered explanations for the shut-down, stating,
"[W]e cannot accept, without further explanation, the
implicit argument that NS’s commitments vis-a vis the
Hollidaysburg Car Shops were intended to remain in effect
only as long as the economy remained as it was at that
time. Regarding NS’s claim that it now has excess freight
car repair capacity, if NS does indeed have excess freight
car repair capacity today, this is an excess that could have
been considered in 1997-1998 when commitments were
made." Id. at 6-7.
In response to the direction to show cause in Decision
No. 186, NS argued that deteriorating economic conditions
forced it to rethink its operations and to take various steps
to reduce costs, increase efficiency, and restructure the
company to enable it to perform profitably. Among those
steps, but far from the only one, was the closure of the
HCS, which NS reported had lost almost seven million
dollars in the year 2000.
Referring to these changed economic conditions, the
Board, less than four months afer Decision No. 186, issued
15
Decision No. 198, in which it held it would not require NS
to keep the HCS open after the announced closing date of
October 1, 2001. In so holding, the Board did not backtrack
on its prior acknowledgment that NS had made
representations. After reviewing the petitioners’ arguments
(which are substantially the same as those before us) and
the positions of other interested entities, the Board began
its Discussion section with the statement:
It is evident that, during the course of and in
connection with the Conrail proceeding, NS made a
general commitment to the Altoona/Hollidaysburg area
and to the employees of the HCS and the JLS [nearby
Juniata Locomotive Shop] that it would make these
shops an important part of its post-transaction
operations.
Decision No. 198, slip op. at 6. The Board described the
commitment as follows:
This commitment was, in essence, both a commitment
to the future economic well-being of the area and a
commitment to the well-being of the individual
employees of the HCS and the JLS, and it is supported
by statements in the record and confirmed by other
representations made by NS officials at the highest
levels. NS has presented nothing here to change our
prior conclusion that the carrier’s representations both
before and during the merger process could not help
but reasonably lead State and local interests to believe
that NS would keep the shops open and to rely on that
commitment in determining how they participated in
the merger process. Decision No. 186 at 6.
Id. (citation omitted). Finally, on the nature of the
commitment the Board concluded that "NS kept its
commitment by operating the HCS and the JLS" for more
than two years. Id.
Petitioners sought a stay pending judicial review. In
Decision No. 200, which was the Board’s final word on the
subject of the representations made, the Board described
Decision No. 198 as "determin[ing] that NS had indeed
made commitments to the Altoona/Hollidaysburg area and
to HCS employees -- which were relied upon by various
16
local and statewide interests in determining how they would
participate in the merger process -- that NS would make
the HCS and the nearby Juniata Locomotive Shop (JLS)
important parts of its post-transaction operations."
Decision No. 200, slip op. at 2. Significantly, the Board
stated that the "sole issue before us [in Decision No. 198]
was whether NS violated our condition that the carrier
adhere to its representations, and we found no indication in
the record of the Conrail proceeding, or elsewhere, that NS
had represented that it would continue HCS operations
irrespective of changing business conditions." Id. at 3
(emphasis added).
Our review of the record leads us to the same conclusion.
Although officials of the Commonwealth, the local
communities, the employees, and influential public figures,
such as Senator Specter, may have been led to understand
otherwise, we can find no representation by NS that it
intended to operate HCS indefinitely without regard to
business conditions. A careful parsing of the statements by
NS on the record shows it made a number of disclaimers
during the application process. For example, NS had stated,
"Applicants have not determined whether any other
locomotive or car shops or facilities, other than the ones
specified in the Operating Plan, will be closed." App. at 848.
In its operating plan, NS observed, "The Operating Plans
are best projections, which are not binding on the
Applicants. . . . These plans . . . cannot anticipate all of the
changes that may be necessary to operate Conrail’s assets
in an efficient manner." App. at 848. NS further stated,
"After NS acquires its portion of Conrail, business
conditions, revenue and traffic growth, efficiency of
operations and similar factors will be evaluated to
determine needs for car and locomotive shops. No timetable
has been set for this determination." App. at 848.
The commitment, as NS now asserts, was a general one.
Counsel for the Commonwealth conceded that there is a
mechanism in which a representation such as that made in
this case could have been included in a legally binding
commitment. Tr. at 6-7. In fact, there was a written
agreement between NS and the Commonwealth in which NS
undertook certain action but that agreement did not cover
17
the HCS. Thus, the events that precipitated the petitions
before us may serve as an object lesson to other states and
communities.
The Board was not arbitrary in concluding that the
representations condition did not bind NS to its
commitment to make the HCS an important part of its
post-transaction operations. It follows that the arguments
that petitioners make that are premised on their contention
that the Board was arbitrary in failing to require NS to
comply with its representations with respect to the HCS
necessarily fail in light of our determination that the Board
was not arbitrary in determining that NS fulfilled its
representations under the circumstances before it.
However, the petitioners also argue that the Board
considered irrelevant factors in reaching its decision and,
correlatively, that it failed to consider other relevant and
important factors. This argument merits careful attention
because administrative agencies have an obligation to act
only after consideration of all relevant factors. See, e.g.,
Motor Vehicle Mfrs.’ Ass’n v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29, 43 (1983) (observing an agency acts arbitrarily
and capriciously when it "relie[s] on factors which Congress
had not intended it to consider [or] entirely failed to
consider an important aspect of the problem"); see also
Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S.
402, 416 (1971) (observing that to determine whether an
agency has acted arbitrarily and capriciously, "the court
must consider whether the decision was based on a
consideration of the relevant factors").
The Board was cognizant of the adverse effect that the
closure of the HCS would have on the HCS employees. To
ameliorate the harsh effects of the closure of the HCS, the
Board imposed labor protective conditions in addition to
those that ordinarily accompany approval of a merger.
When the Board authorizes a merger it is required by
statute to safeguard the interests of railroad employees who
are adversely affected by the transaction. 49 U.S.C.
S 11326. The standard labor protections that the Board
imposed are the conditions set forth in New York Dock
Railway-Control-Brooklyn Eastern District Terminal , 360
I.C.C. 60, 84-90 (1979). The New York Dock conditions
18
entitle employees who are transferred as a result of the
transaction to reimbursement for moving expenses and
losses from the sale of a home, and up to six years of
income protection for those employees who are displaced or
dismissed. Id. at 84, 86-88. In exchange for these benefits,
rail carriers may transfer work and employees as necessary
to carry out the transaction notwithstanding existing labor
agreements, although "rates of pay, rules, working
conditions and all collective bargaining and other rights,
privileges and benefits . . . under applicable laws and/or
existing collective bargaining agreements . . .[are]
preserved unless changed by future collective bargaining
agreements." Id. at 84. In order for an affected employee to
obtain benefits under New York Dock in the event of a
dispute, s/he must establish that the adverse effect was
caused by the Board-approved transaction itself, and not by
some other event. Id. at 88.
In this case, the Board supplemented the standard New
York Dock conditions that it had imposed on the Conrail
transaction "by providing that current HCS employees who
are not afforded the opportunity to transfer to new
employment elsewhere on NS, or cannot exercise their
seniority to obtain such a position, will be deemed to be
eligible, upon dismissal, to New York Dock’s economic
benefits." Decision No. 198, slip op. at 7-8. In other words,
the Board dispensed with the standard New York Dock
requirement that employees establish that the transaction
caused their dismissal or displacement. The Board also
extended "automatic certification" for New York Dock
benefits to all transferring HCS employees. Moreover, in
response to the unions’ argument that the Board imposed
only that which NS had already offered, NS notes that it
had only previously offered the New York Dock conditions to
a few of the unions but that the Board directed that they be
provided to all of the unions. Tr. at 44.
The petitioners acknowledge the ameliorative effect of the
labor conditions but argue that the adverse effect of the
shut-down would be heavily felt on the state and on the
Hollidaysburg/Altoona community. NS notes that it
undertook to make certain investments within
Pennsylvania, such as committing, inter alia, to provide
19
cash to the city and state to attract Kvaerner ASA to the
Philadelphia Navy Yard, to invest in rail development
programs in Philadelphia and throughout Pennsylvania, to
create certain rail-related jobs, to make over $235,000,000
of capital improvement expenditures in Pennsylvania, to
extend a trackage rights agreement with SEPTA for five
years, and to participate in civic and charitable affairs in
the state. As to the community most affected, the Board
responds that it required NS to continue to address the
needs of the Hollidaysburg/Altoona area and help to ease
the community’s loss by seeking alternative economic uses
for the HCS property as well as continuing efforts to
maintain operations at the nearby JLS.
Admittedly, the requirements that NS assist in the
Hollidaysburg/Altoona area are vague, and there is no
assurance that they will even partially make up for the loss
of the HCS. But it is not our function to decide what steps,
if any, should have been required of NS. Instead, we are
limited to reviewing that which the Board did, and we
cannot hold that the Board’s determination that the
financial difficulties in which NS found itself, the general
worsening of the economy, and the absence of work at the
HCS were not adequate reasons to permit NS to make the
management decision to terminate operation of the HCS.
The Board was obviously entitled to consider the economic
condition of NS because the survival of NS as a viable
enterprise has an impact on factors the Board is statutorily
obligated to consider, such as the merger’s effect on the
adequacy of transportation available to the public and the
effect of the merger on competition between rail carriers. 49
U.S.C. S 11324(b). Moreover, although public interest is a
factor to be considered in the Board’s decisions, that
interest can extend beyond the boundaries of any one state.
The final issue to which petitioners direct their fire, and
one that also elicited the concern of a Board member, is a
legitimate one and goes to the heart of administrative
agency decisionmaking. The petitioners, citing decisions
from this court, the Supreme Court and learned treatises,
argue that agencies must apply consistent standards and
principles to insure the fairness of the administrative
process. See, e.g., Chisholm v. Def. Logistics Agency, 656
20
F.2d 42, 47 (3d Cir. 1981) (observing "agencies[acting as
quasi-judicial bodies] . . . have an obligation to render
consistent opinions and to either follow, distinguish or
overrule their own precedent"); Greater Boston Television
Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1971) (observing
"an agency changing its course must supply a reasoned
analysis indicating that prior policies and standards are
being deliberately changed, not casually ignored"); Atchison,
Topeka & Santa Fe Ry. v. Wichita Bd. of Trade, 412 U.S.
800, 808 (1973) (noting that agency has "duty to explain its
departure from prior norms"); see also II Kenneth Culp
Davis & Richard J. Pierce, Jr., Administrative Law Treatise
S11.5, at 204 (3d ed. 1994) (noting that agencies that fail to
adequately explain their departures from precedent act
arbitrarily and capriciously).
Petitioners argue that in this case the Board failed to
render consistent opinions, as, according to them, Decision
No. 198 is not consistent in either tone or result with
Decision No. 186, rendered four months earlier.
At least one commissioner expressed some concern about
the manner in which the Board interpreted its
representations clause. Vice-Chairman Clyburn commented
at the conclusion of Decision No. 198 that "the Board
should be clear on how it views the nature of the
‘representations clause.’ "5 He asked whether this clause
_________________________________________________________________
5. Vice-Chairman Clyburn’s relevant comments read:
Is [the representations] clause a catchall phrase stating merely a
goal for which to strive? Does it indicate a hard and fast rule to be
interpreted literally, with no exceptions or consideration of
extenuating circumstances? Maybe the interpretation of the
representations clause depends on the specific wording of the
representation or the context in which it is given. Further do we
generally afford more flexibility to representations regarding matters
of the operating plan or long term expenditures (because of the
tentative nature of such projections), yet are more strict in our
construction when dealing with specific services to particular
customers? While I understand the conclusion the Board reaches in
this difficult case, the Board, particularly in light of the importance
of merger issues in this new paradigm, should give more guidance
on how it interprets its own ordering paragraph.
Decision No. 198, slip op. at 9.
21
was "a catchall phrase stating merely a goal for which to
strive?" or whether "it indicate[s] a hard and fast rule to be
interpreted literally, with no exceptions or consideration of
extenuating circumstances?" Vice-Chairman Clyburn did
not disagree with the conclusion reached, stating that he
understood "the conclusion the Board reaches in this
difficult case," but stated the Board "should give more
guidance on how it interprets its own ordering paragraph."
We agree. We note that the new merger rules, updated
June 7, 2001, which Commissioner Burkes had hoped
might help to resolve the Board’s interpretation of
representations conditions, fail to provide much assistance
in this respect. The Board characterized the new rule as a
codification of its current practice. It provides that the
Board will oversee parties to a merger for a minimum of five
years, requiring them to present evidence to the Board on
at least an annual basis "to show that . . . the applicants
are adhering to the various representations they made on
the record during the course of their merger proceeding
. . . . During the oversight period, the Board will retain
jurisdiction to impose any additional conditions it
determines are necessary to remedy or offset adverse
consequences of the underlying transaction." Major Rail
Consolidation Procedures, STB Ex Parte No. 582, 2001 STB
LEXIS 546, at *86 (STB June 11, 2001).
Although we recognize this may be an inadequate
response to Vice-Chairman Clyburn’s concern and to that
expressed by petitioners in this case, given the limited
review that we have over agency decisions, and particularly
decisions of the Board which has the responsibility over the
complex issues that arise with mergers in the troubled state
of the railroad industry in this country, we cannot overturn
its decision in this case because we conclude it was neither
arbitrary nor capricious. We note, however, that a more
comprehensive analysis and explanation for the reasons for
what appears to be its change of position would have been
welcome and might have helped to reconcile the affected
parties to the ultimate result.
22
IV.
CONCLUSION
For the reasons set forth we will deny the petition for
review. The stay imposed by this court will be lifted.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
23