No. 70–31. Argued October 20, 1971–Decided June 29, 1972

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The Spokane, Portland & Seattle Railway Co. (SP&S), a subsidiary

of Burlington Northern, and the Union Pacific (UP), sought Interstate Commerce Commission (ICC) approval under $ 5 (2) of the Interstate Commerce Act of a joint acquisition of control of the Peninsula Terminal Co. (Peninsula), whose tracks provide an access route to Rivergate, an industrial complex being developed by the Port of Portland, Oregon. Peninsula would continue to operate as a separate carrier. The Milwaukee and the Southern Pacific (SP), the two other line-haul carriers serving Portland, sought inclusion as joint purchasers of Peninsula, and trackage rights linking their lines with Peninsula, under $85 (2) (b), (c), and (d) of the Act. SP, by a separate proceeding, also sought trackage linking its lines with Peninsula, under $3 (5). The ICC (subject to conditions to protect the traffic of the other railroads) approved the purchase of Peninsula by Burlington Northern and UP, but denied the Milwaukee and SP petitions. It concluded that the adverse effects on SP&S and UP of the proposed four-railroad ownership of Peninsula and accompanying trackage rights would outweigh the advantages to SP, Milwaukee, and the Rivergate industries. Milwaukee contends that Condition 24 (a) to the Northern Lines merger, which gave Milwaukee access to the Portland area over the Burlington Northern-SP&S tracks, required that Milwaukee be included in the purchase of Peninsula. Held:

1. On the record in this case (which is ambiguous with regard to many factual and procedural issues) it has not been shown that the ICC's order authorizing UP and Burlington Northern alone to acquire Peninsula met the "public interest” standard of $ 5 (2). Pp. 834–842.

(a) In stressing the small share in Peninsula's traffic that Milwaukee had before the Northern Lines merger, the ICC ignored any possible increase in that share after Condition 24 (a) took effect. Pp. 839–840.

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(b) In announcing a principle of preserving the market shares of the two railroads currently connecting with Peninsula, the ICC failed to explain why it was not taking into account the potentially enormous traffic over Peninsula, should Peninsula become the northern route into Rivergate. Pp. 840–841.

(c) The ICC's denial of inclusion of SP and Milwaukee because their gain would work a corresponding loss to Burlington Northern and UP is not a proper approach under $5 (2), given the principle that the anticompetitive effects of any § 5 (2) transaction must be explicitly considered. McLean Trucking Co. v. United States, 321 U. S. 67, 83–87. Pp. 841-842.

(d) In view of uncertainties about the northern access to Rivergate-given the physical limitations of Peninsula's present facilities—and the apparent fact that physical operation over Peninsula into Rivergate was not at issue here, approval of the ICC order, with its protective conditions, may still be in the public interest, but the announced grounds for the ICC decision do not comport with the applicable legal principles. See SEC v. Chenery Corp., 318 U. S. 80, 87–88. P. 842

2. The denial of trackage rights to SP (on the ground that SP was "not entitled to serve Peninsula or Rivergate”) should be reconsidered by the ICC in conjunction with the reappraisal of the

§ 5 (2) issues. Pp. 843-844. Reversed and remanded.

BLACKMUN, J., delivered the opinion of the Court, in which all Members joined except POWELL and REHNQUIST, JJ., who took no part in the consideration or decision of the case.

Lofton L. Tatum argued the cause for appellants. With him on the briefs were Raymond K. Merrill, Warren H. Ploeger, Oglesby H. Young, W. Harney Wilson, James H. Pipkin, Jr., Lee Johnson, Attorney General of Oregon, Dale T. Crabtree, Assistant Attorney General, Samuel P. Delisi, and Brenda P. Murray. Messrs. Merrill and Ploeger filed a brief for appellant Chicago, Milwaukee, St. Paul & Pacific Railroad Co. Solicitor General Griswold, Acting Assistant Attorney General Comegys, and Howard E. Shapiro filed a brief for the United States in support of appellants.


Opinion of the Court

Fritz R. Kahn argued the cause for appellee the Interstate Commerce Commission. With him on the brief were Betty Jo Christian and Emmanuel H. Smith. Hugh L. Biggs, Roger J. Crosby, James Warren Cook, Richard Devers, Randall B. Kester, James H. Anderson, and John F. Weisser, Jr., filed a brief for appellees Spokane, Portland & Seattle Railway Co. et al.

MR. JUSTICE BLACKMUN delivered the opinion of the Court.

This case involves an order of the Interstate Commerce Commission, issued under $ 5 (2) of the Interstate Commerce Act, as amended, 54 Stat. 905, 49 U. S. C. § 5 (2), authorizing the joint acquisition of a heretofore independent switching railroad at Portland, Oregon, by two of the four line-haul railroads serving that city. Spokane, P. & S. R. Co. and Union Pacific R. Co., 334 I. C. C. 419 (1969). The switching railroad, Peninsula Terminal Co., is of current interest to the carriers because it provides an entrance route to the Rivergate Industrial District, a modern industrial and port complex being developed by the appellant, Port of Portland.

The two railroads authorized to acquire Peninsula are the Union Pacific Railway Co. (UP) and the Great Northern Pacific & Burlington Lines, Inc. (Burlington Northern), through its subsidiary, the Spokane, Portland & Seattle Railway Co. (SP&S). The two other line

1 SP&S was formerly owned by the Great Northern Railway Co. and the Northern Pacific Railway Co. These two roads merged to become Burlington Northern. See Northern Lines Merger Cases, 396 U. S. 491 (1970). SP&S now operates as an integral part of that railroad. Reference to Burlington Northern in this opinion will include its SP&S operation, but SP&S often will be referred to in connection with the proceedings below, where it was the named party

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haul carriers now serving Portland—the Chicago, Milwaukee, St. Paul & Pacific Railroad Co. (Milwaukee) and the Southern Pacific Transportation Co. (SP), sought to be included as joint purchasers of Peninsula under $8 5 (2)(b), (c), and (d) of the Act, 49 U. S. C. $$ 5 (2) (b), (c), and (d), and sought trackage rights link their lines with Peninsula. This appeal arises out of the Commission's denial-in disagreement with its hearing examiner's recommendations of the petitions of Milwaukee and SP. Together with these two railroads, the Port of Portland and the Public Utility Commissioner of Oregon appeal from the decision of the three-judge District Court affirming, without opinion, the Commission's order. The United States joins the appellants in urging that the judgment below be reversed, while the Commission joins Burlington Northern and UP in urging affirmance. Probable jurisdiction was noted. 401 U. S. 906 (1971).

The question whether the Commission applied the correct legal standards is presented against the background of a complex factual situation—though this is not unusual in the case of railway mergers and acquisitions—and we find it necessary to go into detail concerning the facts and the proceedings prior to the submission of the case here.


A. The Rivergate Area and Peninsula's Relation to It

The developing Rivergate Industrial District occupies nearly 3,000 acres at the tip of the peninsula formed by the confluence of the Columbia and Willamette Rivers. Rivergate's six miles of waterfront will provide docksites for direct deepwater access to the Pacific Ocean. The Port of Portland has expended more than five million dollars of public funds for planning, construction, and development, and it is estimated that ultimate pub

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lic and private investment in industrial and port facilities at Rivergate will exceed 500 million dollars.

As conceived by its public developers, the Rivergate complex will be served by a domestic transportation network capable of providing efficient and economical service to and from points throughout the Nation. To achieve this goal, the Port's consultants recommended construction by the Port of an internal rail loop that would connect with existing carriers at the southwestern and eastern corners of Rivergate, thus providing Rivergate industries with direct access to all line-haul carriers serving Portland. At full development estimated to be 15 years in the future rail traffic generated by these industries is expected to reach between 500 and 600 cars per day, with a projected annual volume of five million tons of freight.

At present, eight industries ? occupy about one-tenth of the Rivergate area.

Seven of these are located on the west, or Willamette River, side of Rivergate, and are served by tracks owned by the Port of Portland. Outside rail access to this part of Rivergate is provided by tracks extending from UP's Barnes Yard (point 9 on the schematic map appended to this opinion) and connecting with the Port of Portland tracks. Over these external tracks, jointly owned by UP and Burlington Northern, UP provides switching service to the line-haul carriers serving Portland. It is expected that this Barnes Yard route will remain the southwest entrance to Rivergate.


2 When the record closed below, the number of industries in Rivergate was five, four of which were located on the Willamette River side of Rivergate. App. 81. By the time the case had reached the Commission, another industry had located on the Willamette River side. According to the Brief for the Interstate Commerce Commission, p. 38, which no one has contradicted, two additional industries have now located on the Willamette River side.

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