980413.docx

MEMORANDUM
TO:RON LAW
FROM:BRAD PURDY
DATE:April 13, 1998
RE:PROCEDURES FOR THE SALE AND ACQUISITION OF RAIL LINES BEFORE THE FEDERAL SURFACE TRANSPORTATION BOARD.
At your request, I have determined the procedures by which an application for the sale or acquisition of a railroad line is processed by the Federal Surface Transportation Board (STB).  The code of federal regulations designates all railroad carriers by a class number depending upon their annual operating revenues.  That class designation will often determine whether and how federal regulations and laws affect a particular carrier.  Class I carriers are those with operating revenues of $250,000,000 or greater.  Class II carriers are those with revenues between $20,000,000 and $250,000,000 and Class II carriers are those with revenues of $20,000,000 or less.  According to the Surface Transportation Board, Union Pacific, for instance, is a Class I carrier.  The information that I was given by the STB suggests that North America Rail Net is a Class III carrier.  For purposes of the sale of the Camas Prairie Railroad, however, North American has apparently established a subsidiary corporation known as Camas Prairie Rail Net Inc. which is classified under the CFR as a “non-carrier.”  Because Camas Prairie Rail Net is a non-carrier, its purchase of the Camas Prairie Railroad is governed by 49 USC § 10901 and the corresponding regulations found within the CFR (49 CFR § 1150).  49 CFR § 1150 sets forth the process by which an application by a non-carrier to acquire an existing railroad is resolved before the STB.  Section 1150.32 requires that the applicant must post a Notice of Intent to undertake the proposed transaction at the workplace of the employees on the affected line and to serve a copy of the Notice on National offices of the labor unions setting forth the types and number of jobs expected to be available, the terms of employment and principles of employee selection and the lines that are to be transferred at least 60 days before the proposed exemption becomes effective.  
According to the STB, Camas Prairie Railnet filed a Notice of Exemption on Thursday, April 9, 1998.  Section 1150.31 provides that certain types of transactions are exempt from the usual federal regulations applicable to the acquisition of rail lines.  Section 1150.32 states that the exemption will be effective seven days after the Notice is filed.  The Board is required to publish a Notice in the Federal Register within thirty days of the filing.  Any party wishing to submit comments and response to the Notice of Exemption must do so within twenty days of the date of publication in the Federal Register.
According to the attorneys I spoke with at the STB, the granting of a Petition for Exemption is largely a foregone conclusion.  Unless the Petition contains false or misleading information, it will be summarily approved.  Because of Federal preemption in this area, there is relatively little that a state can do to prevent the approval of the acquisition of a rail line within its borders.  Moreover, none of the fair labor requirements normally imposed on a larger railroad(eg a Class I railroad) are applicable to non-carrier transactions pursuant to 49 USC §11326.  Consequently, the attorneys at the STB informed me that the Board would likely be in different to any protest or comments made regarding the acquisition of the Camas Prairie Railroad that were based on labor practices.
Brad Purdy
cm\M:railmemo.bp