Opinion ID: 421082
Heading Depth: 2
Heading Rank: 2

Heading: The Expedited Procedural Schedule

Text: 174 As background for Canadian National's challenge to the ICC's accelerated timetable for considering the merger of the Maine Central and the Boston & Maine, we review the steps leading up to Guilford's filing of its application. Guilford tentatively agreed to buy the Boston & Maine on April 15, 1981 and formally agreed to the transaction on July 8, 1981. An amended plan of reorganization reflecting the agreement was filed with the ICC on July 15. 175 Several weeks later, on August 13, 1981, Congress passed the Northeast Rail Service Act of 1981 (NERSA). 69 NERSA § 1164(a), 45 U.S.C. § 1112(a), requires the ICC to decide any merger application involving a bankrupt Northeast railroad within 180 days: 176 [I]n any [merger] proceeding ... involving a [Northeast] railroad ... which was in a bankruptcy proceeding ... on November 4, 1979, the Commission shall, [229 U.S.App.D.C. 49] with or without a hearing, issue a final decision within a period not to exceed 180 days after receipt of an application .... 177 Congress specifically intended this provision to ensure speedy consideration of Guilford's proposal to acquire the Boston & Maine. 70 178 The next day, August 14, 1981, Guilford notified the ICC of its intent to file a control application and requested waiver of the customary 3-month waiting period between notice of intent to file and actual filing. See 49 C.F.R. § 1180.4(b)(1) (1982) (prefiling notice period); id. § 1180.4(f) (waiver provision). The ICC granted the waiver on September 11, 1981. It explained that waiver would further Congress' intent, expressed in NERSA § 1164, that the Commission speedily consider the merger, and that interested parties would not be prejudiced because they should have been aware for some time of the proposed merger. The ICC further explained that because it had to issue a decision on the merger within 180 days, it could not follow the usual 31-month procedural schedule in 49 C.F.R. § 1180.4 (1982). It promised to issue an expedited procedural schedule after receiving the application. 71 Guilford filed its application on October 28, 1981, and one week later, on November 4, 1981, the ICC issued the promised 180-day schedule. The schedule gave competing railroads 60 days (instead of the usual 90) to file responsive applications. 72 179 Canadian National alleges that the ICC's actions left it without enough time properly to prepare a responsive application. It argues that the ICC's abused its discretion in waiving the 3-month prefiling notice period and that the expedited procedural schedule was a rule within the meaning of the APA, 5 U.S.C. §§ 551(4), 553, and was improperly issued without notice and comment. 180 At a practical level, we think that the ICC did an admirable job in compressing its procedures into a minimum time without undue prejudice to the parties. Canadian National makes only one concrete suggestion on what the Commission should have done differently--the Commission should have required an extended prefiling notice period to compensate for the accelerated 180-day post-filing schedule mandated by Congress. That suggestion--though perhaps technically consistent with NERSA § 1164--runs directly counter to Congress' intent that the merger be considered quickly. 181 Turning to Canadian National's legal argument, we find no abuse of discretion in the Commission's decision to compress the proceedings slightly by waiving the 3-month prefiling notice period. The Commission's explanation for its action is reasonable and consistent with congressional intent. We can ask no more. We also hold that the procedural schedule was exempt from notice and comment requirements as a rule[ ] of agency procedure. 5 U.S.C. § 553(b)(A). 73 182 [229 U.S.App.D.C. 50] It is clear, at the outset, that the procedural schedule is a rule, as defined broadly in 5 U.S.C. § 551(4) to include not only substantive rules but also: 183 the whole or a part of an agency statement of general or particular applicability and future effect ... describing the organization, procedure, or practice requirements of an agency. 184 The APA's notice and comment requirements apply, however, only to substantive rules and not to interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice. Id. § 553(b)(A). It is hard to characterize the agency statement at issue here as anything other than a rule of procedure. 185 That is not quite the end of the inquiry, for all procedural rules affect substantive rights to greater or lesser degree. Our cases recognize that when an agency rule jeopardizes the rights and interests of parties ..., it must be subject to public comment, even if the rule can in some sense be called procedural. Batterton v. Marshall, 648 F.2d 694, 708 (D.C.Cir.1980) (footnote omitted). The issue is one of degree--whether the substantive effect is sufficiently grave so that notice and comment are needed to safeguard the policies underlying the APA. 186 In applying this general principle to this case, we begin by noting that the time schedule at issue here is definitely at the procedural end of a spectrum running from procedural to substantive. Thus, we put to one side cases like Batterton where a rule has definite substantive consequences but can arguably be called either procedural or substantive, and a court must decide which it is. 74 When a rule prescribes a timetable for asserting substantive rights, we think the proper question is whether the time allotted is so short as to foreclose effective opportunity to make one's case on the merits. This standard allows an agency ample discretion to structure its proceedings as it sees fit. However, when an agency abuses that discretion by creating extreme procedural hurdles that foreclose fair consideration of the underlying controversy, a court, by remanding for notice and comment, can ensure that the agency explores the substantive consequences of its procedural rule. 187 We do not think that Canadian National's ability to file a responsive application was substantially abridged by the Commission's procedural schedule. The ICC was constrained by Congress to reach a decision within 180 days. It gave competing railroads 75 days to file a responsive application (60 days plus a two-week extension). This allotment--almost half of the 180 days that Congress gave the ICC to reach a decision, and only a bit less than the 90 days allowed in a normal 31-month merger proceeding--was more than sufficient to permit Canadian National to develop its response. Accord Ranger v. FCC, 294 F.2d 240, 244 (D.C.Cir.1961) (30-day time limit for filing competing license application); Pennsylvania v. United States, 361 F.Supp. 208, 220-22 (M.D.Pa.) (3-judge court) (accelerated railroad abandonment procedures), aff'd mem., 414 U.S. 1017, 94 S.Ct. 440, 38 L.Ed.2d 310 (1973). 75 [229 U.S.App.D.C. 51] C. ICC Jurisdiction over Holding Company Securities 188 To buy the Maine Central and later the Boston & Maine, Timothy Mellon created a holding company--Guilford--and had Guilford issue stock and bonds to him in return for the cash to make the purchases with. He neither sought nor obtained ICC approval for these transactions. 189 Under 49 U.S.C. § 11,301(b)(1), a carrier--defined in id. § 11,301(a)(1) to include a corporation organized to provide transportation by rail--must obtain ICC approval before issuing securities, and unapproved securities are void. Providence & Worcester asserts that Guilford, as a holding company created to acquire railroad properties, is a carrier subject to § 11,301 and that Guilford's non-approved securities are void. The ICC responds that it lacks jurisdiction to review Guilford's issuance of securities because Guilford is not a carrier but merely a holding company that owns carriers. 190 We uphold the ICC's interpretation of § 11,301(b)(1) as not granting it jurisdiction over securities issued by a holding company. Although the Commission very early took a view similar to that now espoused by Providence & Worcester, its current interpretation has not changed since 1960. 76 That long-held interpretation is entitled to substantial deference, and we find it sufficiently reasonable to be accepted. Federal Election Commission v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 39, 102 S.Ct. 38, 46, 70 L.Ed.2d 23 (1981). 191 The language of § 11,301 does not inexorably command either result. But other provisions of the Act show that Congress understood the difference between a carrier and a holding company that owns a carrier. In particular, 49 U.S.C. § 11,348 provides that when the ICC approves a merger in which a person not a carrier acquires control of two or more carriers, the person is subject, as a carrier, to [§ 11,301]. 77 Thus, if Congress had wanted to include holding companies within the ambit of § 11,301, it knew how to say so. Moreover, the ICC's construction preserves independent force for § 11,348. If § 11,301 covers holding companies that own carriers, § 11,348 would be surplusage. 192 It is true that the ICC's interpretation permits a carrier to exempt itself from the Commission's securities jurisdiction by inserting a holding company between itself and its stockholders. But the Securities and Exchange Commission will continue to regulate the holding company's issuance of securities to the public. Thus, the primary purpose of § 11,301--to protect investors, see Association of American Railroads v. United States, 603 F.2d 953, 968-70 (D.C.Cir.1979) (reviewing legislative history)--will not be lost. Only the secondary purpose--to ensure that railroads have sound finances--is weakened. There is no evidence in the record that this limited loophole has caused significant problems for the Commission in the past. 78 Thus, the apparent flaw in the statutory scheme gives us [229 U.S.App.D.C. 52] no warrant to reject the ICC's construction of its governing statute. 79 193 D. Failure to Apply for Control of the Vermont & Massachusetts Co. 194 The Vermont & Massachusetts line is a 56-mile segment of the Boston & Maine's main east-west line, nominally owned by the Vermont & Massachusetts Co., but leased to the Boston & Maine under a 999-year lease and thus for all practical purposes owned by the Boston & Maine. The Vermont & Massachusetts Co. owns no other significant property. Prior to the merger, it was owned 37% by the Boston & Maine, 37% by Guilford, 24% by Providence & Worcester, and 2% by others. Thus, Guilford, when it acquired the Boston & Maine, would automatically acquire control of the Vermont & Massachusetts Co. as well. 195 Providence & Worcester objects that Guilford failed to file a formal application to control the Vermont & Massachusetts Co. The ICC found that Guilford had made a technical misstep but decided to consider and approve Guilford's control of the Vermont & Massachusetts Co. on the merits. See Boston & Maine Merger, 366 I.C.C. at 347-48, 355. Providence & Worcester was not prejudiced by this course of action. It had actual notice of Guilford's control proposal and indeed submitted its own responsive application to purchase the Vermont & Massachusetts line, which the ICC considered and rejected. Providence & Worcester raises no substantive objections to the ICC's reasoning. 196 Under these circumstances, we see no harm in the ICC's waiver of a formal application. Taking, as we must, due account ... of the rule of prejudicial error, 5 U.S.C. § 706 (last clause), we affirm the Commission. E. Premature Control of the Boston & Maine 197 Guilford's acquisition agreement with the Boston & Maine gave Guilford limited control over the Boston & Maine's activities--primarily a veto over major corporate decisions--pending ICC approval of the transaction. Providence & Worcester asserts that this control was illegal unless and until the Commission approved the acquisition, and that Guilford is therefore unfit to own the Boston & Maine. The ICC responds that Guilford could not control the Boston & Maine because the Boston & Maine, as a bankrupt, was subject to the ultimate authority of the reorganization court. 198 We think the parties' dispute over whether Guilford crossed the ill-defined line between control and noncontrol is largely besides the point. Premature control does not automatically defeat a transaction. Missouri Pacific Railroad--Control--Chicago & Eastern Illinois Railroad, 327 I.C.C. 279, 322 (1965), aff'd sub nom. Illinois Central Railroad v. United States, 263 F.Supp. 421 (N.D.Ill.1966) (3-judge court), aff'd mem., 385 U.S. 457, 87 S.Ct. 612, 17 L.Ed.2d 509 (1967). Rather, it is simply a factor in the Commission's overall decision whether a merger is in the public interest. See Gilbertville Trucking Co. v. United States, 371 U.S. 115, 127, 83 S.Ct. 217, 225, 9 L.Ed.2d 177 (1962). 199 Here, the Commission found that the agreement was reasonable and entered into in good faith: 200 The negative covenants of the acquisition agreement are no more than standard safeguards to ensure that B & M would emerge from reorganization in a position substantially similar to the one it was in at the time of the agreement. It is hardly unreasonable for [Guilford] to obtain contractual assurances that it would get what it bargained for. 201 Boston & Maine Merger, 366 I.C.C. at 327-28. Whether or not these standard safeguards technically violated § 11,343(b)'s requirement that Guilford obtain ICC approval before assuming control of the Boston & Maine--a question we do not decide--there is no evidence of the overreaching or bad faith that would justify the [229 U.S.App.D.C. 53] Commission in treating premature control as a major factor in its decision. Thus, the Commission's error, if any, was of no significance. 80