Federal appeals court upholds merger moratorium

WASHINGTON -- The U.S. Court of Appeals ruled today (Friday, July 14) that federal regulators were justified in imposing a 15-month moratorium on rail mergers last March.

The decision represented a setback for the Canadian National Railway (CN) and the Burlington Northern Santa Fe (BNSF), whose merger proposal was put on hold by the Surface Transportation Board's (STB) moratorium.

"We conclude the Board neither violated the statute nor otherwise exceeded its authority by imposing the moratorium and deny the petition for review," ruled Judge Douglas Ginsburg on behalf of the majority of the three-judge appeals panel.

In a joint statement, the railroads expressed disappointment with the decision and pledged to discuss the implications for their proposed combination.

"Neither BNSF nor CN will speculate about its options," the statement said.

The STB had told the appeals court that the railroad industry was at a critical "crossroad," and the moratorium was necessary to evaluate outdated merger standards. It also said allowing the merger to go through would likely instigate an additional rash of mergers, causing further rail congestion and headaches for consumers.

The 1996 merger of the Union Pacific and the Southern Pacific led to serious bottlenecks across the merged company's system in 1997.

In addition, the purchase and division last year of Conrail by Norfolk Southern (NS) and CSX in the East saw widespread delays despite extensive planning to avoid a repeat of UP's experience.

Judge David Sentelle, who dissented from the majority, said the STB had "failed to act within the statutory time frame" and had gone beyond the power delegated to it by Congress when it implemented the moratorium.

CN and BNSF had announced their proposed combination through a new company, North American Railways, Inc., on Dec. 20, 1999. The largely end-to-end combination would create a rail system stretching 50,000 miles, linking eight Canadian provinces and 33 states in the western and central United States, and employing 67,000 people.

Through its subsidiary, The Burlington Northern and Santa Fe Railway Company, BNSF, headquartered in Fort Worth, Texas, operates one of the largest rail networks in North America, with 33,500 route miles of track covering 28 states and two Canadian provinces.

Canadian National Railway Company spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and key cities of Toronto, Buffalo, Chicago, Detroit, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America.

In their joint statement, the railroads said, "BNSF and CN are deeply disappointed by today's court decision upholding the Surface Transportation Board's rail merger moratorium. The ruling ... means that CN and BNSF will not be able to file their common control application with the STB until the moratorium is lifted.

"The managements of CN and BNSF will discuss the ruling's implications for their proposed business combination, and each will consult its respective board of directors," the railroads said.

Meanwhile, CSX released a statement applauding the court's decision, characterizing the ruling "as recognition of the Surface Transportation Board's legitimate concern that the proposed BNSF/CN merger, or any other rail merger for that matter, is not in the public interest at this time."

"The Court's action," CSX said, "coupled with the Board's original decision, allows the industry the opportunity to focus on resolving merger-related service issues, and on effectively bringing recent rail mergers to a successful conclusion for the benefit of our customers and the public."

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