CSX/CN: Impasse Over Connection Rights

CSXT, CN Fail to Agree on STB Condition of Approval for Massena Lines Sale, Based on FGLK Petition for Future Connecting Rights. Consummation of Sale in Question.

26 May, Washington DC – CSXT and Canadian National Railway have submitted a letter to the Surface Transportation Board regarding placing the CN (B&LE) acquisition of the CSXT Massena Lines in limbo, pending an appeal to the STB’s request to remove certain verbiage from the transaction before approving. The filing reads,

Bessemer and Lake Erie Railroad Company jointly with CSX Transportation, Inc. respectfully submit this letter in response to Ordering Paragraph No. 3 of the Board’s decision of April 6, 2020. That decision approved the acquisition by B&LE of the U.S. Massena Lines from CSXT between Fort Covington, NY and Woodard, NY, subject to standard employee protective conditions and a condition in Ordering Paragraph No. 3 that required B&LE and CSXT to propose a modification or elimination of Section 5.14(b) in the parties’ executed Purchase and Sale Agreement.

Tomorrow and tomorrow

In order to allow the parties to continue efforts to seek agreement on a submission, in response to the parties’ joint requests, the STB twice extended the deadline for the parties to submit their proposal, first to 18.May, and then to 26.May. The CSX/CN letter acknowledges,

Unfortunately, B&LE and CSXT are unable to submit a proposal today in response to the Board’s order. B&LE and CSXT have held numerous negotiating sessions and exchanged proposals since the Approval Decision. Despite our good faith efforts, we have been unable to agree to a proposed solution in response to Ordering Paragraph No. 3.

Under present circumstances, it regrettably appears that the parties will be unable to proceed with the Transaction absent reconsideration of the Board’s Section 5.14(b) condition in the Approval Decision. B&LE and CSXT remain committed to the Transaction and want to proceed with the Transaction to achieve its significant benefits in the public interest that it offers, including reduced transit times, preservation of efficient routing, and labor protection.

In the 06.April tentative approval, the STB imposed a condition to resolve what it saw as a serious concern about section 5.14(b) of the PSA, which restricts B&LE from ever seeking access to FGLK and NYSW—whether “directly or indirectly,” “before or after” the Transaction, even through means other than the transaction. Although the Board recognizes that B&LE is not being granted operating rights to reach or interchange with FGLK and NYSW as part of the Transaction, section 5.14(b) would apply far beyond this transaction, by preventing B&LE from ever exercising its rights, under the Board’s statutes and regulations, to seek access to those carriers. The inclusion of this broad, prohibitive provision in the transaction runs contrary to the statutory objectives of providing carriers and their customers access to the Board to resolve competitive issues and puts B&LE (and FGLK and NYSW) at a competitive disadvantage relative to other carriers that also connect to CSXT going forward.

The parties therefore plan to petition for reconsideration of the Board’s Section 5.14(b) condition in Ordering Paragraph No. 3 by the June 5, 2020 deadline. {STB Docket# FD 36347}

Syracuse region NY

The Board acknowledged FGLK’s concerns about allowing a permanent limitation on competitive service to be integral to the Purchase & Sale Agreement between CSX (seller) and B&LE/CN. (CN}