[Federal Register Volume 84, Number 212 (Friday, November 1, 2019)]
[Notices]
[Pages 58798-58801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23956]


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SURFACE TRANSPORTATION BOARD

[Docket No. FD 36326]


Brookfield Asset Management, Inc. and DJP XX, LLC--Control 
Exemption--Genesee & Wyoming Inc., et al.

    Brookfield Asset Management, Inc. (Brookfield), and DJP XX, LLC 
(DJP)

[[Page 58799]]

(collectively, Applicants),\1\ filed a verified notice of exemption 
under 49 CFR 1180.2(d)(2) to allow Applicants to control Genesee & 
Wyoming Inc. (GWI) and the 106 rail carriers controlled by GWI that are 
subject to the jurisdiction of the Board (GWI Railroads).\2\ As 
discussed further below, the Board will allow the exemption to become 
effective. However, Applicants will remain subject to the Board's July 
22, 2019 direction to provide periodic updates regarding the status and 
outcome of the review being conducted by the Committee on Foreign 
Investment in the United States (CFIUS).
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    \1\ Brookfield controls DJP within the meaning of 49 U.S.C. 
10102(3).
    \2\ Two of the GWI Railroads are Class II carriers, and the 
remainder are Class III carriers. (Verified Notice, Ex. 1.)
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Background

    On July 9, 2019, Applicants filed a verified notice of exemption 
under 49 CFR 1180.2(d)(2) to control GWI, a publicly traded noncarrier 
holding company that controls, through direct or indirect equity 
ownership, the GWI Railroads. (Verified Notice 2.) As a result of the 
proposed transaction, GWI would become a privately held company and a 
wholly owned subsidiary of DJP. (Id.) According to the verified notice, 
DJP would indirectly control the GWI Railroads through DJP's direct 
control of GWI, and Brookfield would indirectly control the GWI 
Railroads through Brookfield's control of DJP and DJP's control of GWI. 
(Id.) Applicants state that Brookfield and DJP are not rail carriers 
and do not own or control any rail carriers in the United States. (Id.) 
Applicants further state that they each require Board authority 
pursuant to 49 U.S.C. 11323(a)(4) to consummate the transaction. (Id.)
    Applicants represent that, pursuant to 49 CFR 1180.2(d)(2): (i) The 
GWI Railroads do not connect with any rail line owned or controlled by 
DJP or Brookfield; (ii) the proposed transaction is not part of a 
series of anticipated transactions that would connect any railroad 
owned or controlled by DJP or Brookfield with any GWI Railroad, or that 
would connect any of the GWI Railroads with each other; and (iii) the 
proposed transaction does not involve a Class I carrier. (Id. at 2-3.) 
Applicants acknowledge that, under 49 U.S.C. 10502(g), the Board may 
not use its exemption authority to relieve a rail carrier of its 
statutory obligation to protect the interests of its employees. (Id. at 
5.) Applicants further acknowledge that because the transaction 
involves the control of two Class II carriers and more than one Class 
III carrier, the transaction is subject to the labor protection 
requirements of 49 U.S.C. 11326(a) and New York Dock Railway--Control--
Brooklyn Eastern District Terminal, 360 I.C.C. 60 (1979). (Verified 
Notice 5.)
    By decision served on July 22, 2019, and published in the Federal 
Register on July 26, 2019 (84 FR 36157), the effectiveness of the 
exemption was postponed until further order of the Board to allow 
sufficient time to consider the issues presented. The decision also 
directed Brookfield and DJP to provide updates regarding CFIUS review 
and the outcome of such review, and it invited comments from the 
Applicants and the public.
    In response to its July decision, the Board received numerous 
comments, including opening and reply comments from the Applicants. 
Most of the comments relate to the Providence and Worcester Railroad 
Company (P&W), a Class III railroad controlled by GWI \3\ that operates 
passenger and excursion services between Rhode Island and 
Massachusetts.\4\ The main interests of the P&W Commenters are the 
continuation of excursion service, completion of a multi-use path, and 
the need for strong communication and collaboration with Applicants as 
the prospective new owners of P&W. Some of the P&W Commenters request 
that the Board condition authorization of the transaction on the 
Applicants working cooperatively to accommodate completion of the 
multi-use path. (See BHC Comments 3; City of Woonsocket Comments 1-2; 
National Park Service Comments 1; Honorable Michael O. Moore Comments 
1; Town of Grafton Comments 1; Town of Uxbridge Comments 1.)
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    \3\ Genesee & Wyoming Inc.--Acquis. of Control Exemption--
Providence & Worcester R.R., FD 36064 (STB served December 16, 
2016).
    \4\ The following commenters focused on issues pertaining to 
P&W: Blackstone Valley Tourism Council; the Honorable Donald R. 
Grebien, Mayor of Pawtucket, R.I.; Northern Rhode Island Chamber of 
Commerce; Blackstone River Valley National Heritage Corridor, Inc. 
(BHC); Town of North Smithfield, R.I.; City of Woonsocket, R.I.; 
U.S. Department of the Interior, National Park Service (National 
Park Service); the Honorable Michael O. Moore, Massachusetts State 
Senator; the Honorable James A. Diossa, Mayor of City of Central 
Falls, R.I.; Town of Grafton, Mass.; and Town of Uxbridge, Mass. 
(collectively, P&W Commenters).
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    A comment in opposition to the proposed transaction was received on 
August 20, 2019, from Victoria Dalrymple, who states that she is a 
shareholder of GWI. (Dalrymple Comments 1.) Dalrymple argues that the 
exemption at 49 CFR 1180.2(d)(2) is not applicable to the proposed 
transaction because Brookfield's management of railroads in other 
countries, its pyramid-controlled corporate structure, and evidence of 
its past decapitalization of rail assets suggest the possibility of 
anticompetitive outcomes. (Id. at 1-4, 6-7.) Dalrymple also raises 
concerns over the possibility of foreign entities--a ``Singapore 
sovereign wealth fund'' \5\ and Qatar, both of which have relationships 
with Brookfield--controlling key domestic infrastructure assets. (Id. 
at 6.)
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    \5\ Dalrymple appears to be referring to GIC Pte. Ltd. (GIC). 
According to Applicants, GIC is a global investment firm that 
manages Singapore's foreign reserves and, at closing of the proposed 
transaction, GIC would have an approximately 27% equity interest in 
DJP and the same percentage vote on the DJP board of directors. (See 
Applicants Response 2 n.3; 2 n.4 & Verification, Sept. 9, 2019.)
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    The Transportation Division of the International Association of 
Sheet Metal, Air, Rail and Transportation Workers (SMART/TD) filed a 
notice of intent to participate, and on September 5, 2019, Samuel J. 
Nasca, for and on behalf of SMART/TD, New York State Legislative Board 
(SMART/TD-NY), filed reply comments asserting that the notice of 
exemption should be rejected or the exemption revoked because of, among 
other things, the magnitude and nature of the transportation involved. 
(SMART/TD-NY Reply 3-4.) SMART/TD-NY expresses concern regarding the 
role of GIC, which it argues is required to be an applicant in addition 
to Brookfield and DJP, (id. at 4-5); asserts that Brookfield controls 
rail investments in Brazil, a country that produces soybeans that 
compete globally with U.S. soybeans, (id. at 5); and states that GWI 
controls rail carriers that are located in other countries and are not 
subject to Board jurisdiction, (id. at 8). SMART/TD-NY further comments 
that SMART/TD employees may be adversely affected by Applicants' 
prospective management of GWI. (Id. at 6)
    On September 5, 2019, Applicants filed reply comments. Applicants 
respond to the P&W Comments and state that they intend to continue to 
work with GWI, P&W, and the communities and reiterate that they do not 
plan to change the operations of GWI or the GWI Railroads after 
consummation of the proposed transaction. (Applicants Reply 3, Sept. 5, 
2019.) They further respond that the imposition of conditions on the 
transaction unrelated to competition would be inappropriate in this 
case. (Id. at 4.) Applicants assert that Dalrymple's comments are 
inaccurate and argue, among other things, that the proposed transaction 
will not have anticompetitive impacts because there

[[Page 58800]]

will be no change in relationships with carriers outside the GWI 
corporate family, or in patterns or types of service by the GWI 
Railroads. (Id. at 5-6.) Applicants argue that Dalrymple 
mischaracterized Brookfield's ownership of an Australian railroad 
company and that those claims have no relevance to the applicability of 
the class exemption process. (Id. at 7.) Applicants also respond that 
no investor in Brookfield's private institutional funds has the ability 
to exercise control over those funds, no foreign government has any 
influence over any Brookfield-controlled funds, and such concerns are 
outside the Board's purview in any event. (Id. at 7-8.)
    Applicants also filed a response to SMART/TD-NY's September 5 reply 
comments on September 9, 2019, asserting that its claims are without 
merit.\6\ (Applicants Response 2, Sept. 9, 2019.) Applicants argue that 
GIC need not obtain the Board's control authority because the proposed 
transaction will not result in GIC controlling any of the Applicants or 
GWI Railroads and that GWI's control of carriers in other countries is 
not relevant to whether Applicants qualify for the Sec.  1180.2(d)(2) 
exemption. (Id.) They also generally assert that no valid competitive 
concerns have been raised that would warrant rejection of the notice or 
revocation of the exemption. (Id.)
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    \6\ Under 49 CFR 1104.13(c), a reply to a reply is not 
permitted. However, in the interest of a more complete record, the 
Board will accept into the record Applicants' September 9 response, 
as well as a September 10, 2019 petition for leave to reply and 
reply to Applicants' response filed by SMART/TD-NY, and an October 
2, 2019 petition for leave to reply and reply to Applicants' 
September 5, 2019 response filed by Dalrymple, regarding 
Brookfield's corporate structure.
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    On September 24, 2019, Applicants filed an update regarding the 
status of the CFIUS review and a motion for protective order.\7\ On 
September 26, 2019, Applicants filed a further update regarding the 
status of the CFIUS review.
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    \7\ By decision served September 27, 2019, Applicants' motion 
for protective order was granted.
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Discussion and Conclusions

    Under 49 U.S.C. 11323(a)(4), the Board's approval and authorization 
is required for a transaction involving the acquisition of control of 
at least two rail carriers by a noncarrier. The class exemption set 
forth at 49 CFR 1180.2(d)(2) provides an expedited means of obtaining 
Board approval and authorization provided that certain required 
information is submitted and three criteria are met: (i) The railroads 
would not connect with each other or any railroads in their corporate 
family, (ii) the acquisition or continuance in control is not part of a 
series of anticipated transactions that would connect the railroads 
with each other or any railroad in their corporate family, and (iii) 
the transaction does not involve a Class I carrier.
    After considering the comments and other information submitted into 
the record, the Board will allow the exemption to take effect. The 
comments submitted do not undermine the applicability of the 49 CFR 
1180.2(d)(2) class exemption process.
    The P&W Commenters express concerns regarding the excursion 
services,\8\ and four of the P&W Commenters request that the Board 
impose a condition relating to development of the multi-use path, but 
none of the P&W Commenters oppose the proposed transaction. Nor do the 
P&W Commenters suggest that the proposed transaction is not appropriate 
for a notice of exemption or that it would have anticompetitive 
effects. The Board appreciates the information and perspective of the 
P&W Commenters. However, the P&W Comments have not described how the 
requested condition is relevant to the considerations under 49 CFR 
1180.2(d)(2) nor have they provided any legal basis for imposing such a 
condition. The Board concludes that the requested condition is not 
warranted and, further, Applicants' September 5 reply comments have 
sufficiently addressed the concerns expressed by the P&W Commenters. 
(See Applicants Reply 2-4.)
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    \8\ The City of Woonsocket expressed interest in the return of 
commuter rail service on P&W lines but did not oppose the proposed 
transaction.
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    Dalrymple asserts that Sec.  1180.2(d)(2) is inapplicable and 
suggests that the proposed transaction would result in anticompetitive 
outcomes, but she does not explain how the assertions raised in her 
comments (e.g., past decapitalization of an Australian railroad 
controlled by Brookfield and various negative financial impacts in that 
country, and concerns about Brookfield's corporate structure) 
demonstrate that the class exemption criteria are not met, or how the 
assertions would support a finding of anticompetitive effects. The 
proposed transaction would change the ownership of GWI, as opposed to 
changing relationships with carriers outside the GWI corporate family 
or increasing common control of railroads subject to the Board's 
jurisdiction.\9\
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    \9\ Regarding the applicability of Sec.  1180.2(d)(2), the 
control of another rail carrier outside the United States is not 
within the Board's jurisdiction and does not make an entity a rail 
carrier. See 49 U.S.C. 10501(a); 49 U.S.C. Sec.  11323(a).
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    Similarly, SMART/TD-NY's comments about the magnitude and nature of 
the transportation at issue do not support rejection of the notice or 
revocation of the exemption. SMART/TD-NY asserts that the proposed 
transaction ``raises competitive questions,'' (SMART/TD-NY Reply 8-9), 
but does not otherwise explain this claim aside from a reference to 
transportation of soybeans in Brazil for sale in international markets. 
But see 49 U.S.C. 10501(a) (Board jurisdiction applies to 
transportation in the United States). Finally, except for an assertion 
that ``GIC is important'' to the proposed transaction, SMART/TD-NY does 
not state why GIC should be required to be an applicant.\10\ (SMART/TD-
NY Reply 4-5.)
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    \10\ As noted above, Applicants included in their September 9 
response a verification from James Rickert, President of DJP, that, 
at closing of the proposed transaction, GIC would have an 
approximately 27% equity interest in DJP and same percentage vote on 
the DJP board of directors. (Applicants Response 2 n.4 & 
Verification, Sept. 9, 2019.)
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    Accordingly, Applicants' notice of exemption will become effective 
on the service date of this decision. Because the overall transaction 
is also subject to CFIUS approval,\11\ Applicants will remain subject 
to the Board's previous direction to provide updates regarding the 
status of CFIUS review and to provide an update within seven days after 
they are notified of the outcome of such review.
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    \11\ (See Applicants Comment 12, Aug. 16, 2019.)
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    It is ordered:
    1. The exemption will become effective on the service date of this 
decision.
    2. Notice of this decision will be published in the Federal 
Register.
    3. This decision is effective on its service date.
    Decided: October 28, 2019.
    By the Board, Board Members Begeman, Fuchs, and Oberman. Board 
Member Oberman commented with a separate expression.
    BOARD MEMBER OBERMAN, commenting:
    Because this transaction meets the requirements of 49 CFR 
1180.2(d), and because, as stated in the decision, the comments 
submitted have not undermined the applicability of the class exemption 
process, I join in approving the transaction's going forward as a class 
exemption. Nevertheless, I write separately to express my concerns with 
the use of the class exemption process for transactions of this 
magnitude.

[[Page 58801]]

    GWI's North American operations, which will be acquired pursuant to 
the proposed transaction, include 106 short line and regional railroads 
subject to Board jurisdiction, (Verified Notice 1), and operations in 
41 states with over 13,000 track miles. See Genesee & Wyoming Inc., 
About Us, https://www.gwrr.com/about_us (last visited Oct. 28, 2019). 
GWI's 2018 North American operating revenues totaled $1.36 billion. 
Genesee & Wyoming, Inc., 2018 Annual Report 7 (2019). GWI's railroads 
are essential to serving a large number of shippers and receivers and 
constitute essential links in the national rail network. Most or all of 
the country's Class I railroads could not serve many of their customers 
without the service provided by GWI's railroads. Indeed, if GWI were 
itself a rail carrier, its North American operations would clearly make 
it a Class I carrier.\1\ As it is, GWI is a widespread presence 
throughout the national rail network, in which it plays an integral 
role. Thus, this is by far the largest and most geographically diverse 
collection of railroads impacting the U.S. freight network ever to be 
processed as a class exemption under the Board's existing 
regulations.\2\
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    \1\ See Indexing the Annual Operating Revenues of R.R.s, EP 748 
(STB served June 14, 2019) (calculating Class I revenue threshold at 
$489,935,956).
    \2\ Cf. Fortress Inv. Grp. LLC--Control Exemption--RailAmerica, 
Inc., FD 34972 (STB served Dec. 22, 2006) (publishing notice for the 
acquisition of 30 rail carriers); Mont. Rail Link, Inc.--Exemption 
Acquis. & Operation--Certain Lines of Burlington N. R.R., FD 31089 
(ICC served May 26, 1988) (denying petitions for revocation of 
notice of exemption permitting acquisition of two non-contiguous 
segments of rail line totaling 830.62 miles in length in Montana and 
Idaho); Wisc. Cent. Ltd.--Exemption Acquis. & Operation--Certain 
Lines of Soo Line R.R., FD 31102 (ICC served Oct. 8, 1987) (vacating 
stay and permitting consummation of a class exemption for the 
acquisition of 1,801 miles of rail line in Wisconsin and parts of 
Michigan, Minnesota, and Illinois; acquisition of 173.6 miles of 
trackage rights in Wisconsin and parts of Minnesota and Illinois; 
and assignment of 27.7 miles of trackage rights on third-party 
carriers in Wisconsin).
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    For these reasons, in my opinion, this proceeding raises 
significant questions regarding whether transactions of this magnitude 
were contemplated when the class exemption regulations were adopted, 
and therefore raises questions as to whether it is appropriate for such 
major transactions to be eligible under those regulations in the first 
place. While I agree that, under existing regulations, this transaction 
may proceed as a class exemption, I do think the Board should consider 
in the future whether the exemption process should be applicable to 
transactions of such scale.

Jeffrey Herzig,
Clearance Clerk.
[FR Doc. 2019-23956 Filed 10-31-19; 8:45 am]
 BILLING CODE 4915-01-P