[Federal Register Volume 86, Number 55 (Wednesday, March 24, 2021)]
[Notices]
[Pages 15765-15768]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06066]


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SURFACE TRANSPORTATION BOARD

[Docket No. FD 36306 (Sub-No. 1); Docket No. FD 36451]


RFM Holdco LLC--Control Exemption--Pioneer Railcorp, et al.; The 
Baupost Group, L.L.C. and US Infravest Managers LP--Control Exemption--
Pioneer Railcorp, et al.

    The Board has received two verified notices of exemption seeking 
authority to acquire control of Pioneer Railcorp (Pioneer), a 
noncarrier holding company, and the 15 Class III railroads controlled 
by Pioneer (the Pioneer Railroads).\1\ In Docket No. FD 36306 (Sub-No. 
1), RFM HoldCo LLC (RFM) seeks an after-the-fact exemption for its 
unauthorized 2019 acquisition of control of Pioneer and the Pioneer 
Railroads. (RFM Verified Notice 1, FD 36306 (Sub-No. 1) et al.) In 
Docket No. FD 36451, The Baupost Group, L.L.C. (Baupost), and US 
Infravest Managers LP (Infravest Managers) seek authority to acquire 
indirect control of Pioneer and the Pioneer Railroads from a subsidiary 
of RFM, Related Infrastructure Holdings LLC (Related Infrastructure 
Holdings). (Baupost Verified Notice 1 & Ex. 3, FD 36451.) Both notices 
were held in abeyance pending further order of the Board. See Baupost 
Grp., L.L.C.--Control Exemption--Pioneer Railcorp, FD 36451 et al. (STB 
served Nov. 25, 2020); RFM HoldCo LLC--Control Exemption--Pioneer 
Railcorp, FD 36306 (Sub-No. 1) et al. (STB served Dec. 28, 2020).
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    \1\ They are: Alabama & Florida Railway Co., Inc.; Alabama 
Railroad Co., Inc.; Decatur Junction Railway Co.; Elkhart & Western 
Railroad Co.; Fort Smith Railroad Co.; The Garden City Western 
Railway, Inc.; Georgia Southern Railway Co.; Gettysburg & Northern 
Railroad Co.; Indiana Southwestern Railway Co.; Kendallville 
Terminal Railway Co.; Keokuk Junction Railway Co.; Michigan Southern 
Railroad Company; Mississippi Central Railroad Co.; Pioneer 
Industrial Railway Co.; and Vandalia Railroad Company. (See Baupost 
Verified Notice 1-3, FD 36451.)
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    The Board finds that these transactions are not appropriate for the 
expedited class exemption process. However, after reviewing the 
supplemental information submitted in this docket, the Board will 
grant, on its own motion, the appropriate exemptions to authorize the 
transactions.

Background

    In June 2019, Brookhaven Rail Partners, LLC (Brookhaven), Related 
Infrastructure, LLC (Related Infrastructure), BRX Transportation 
Holdings, LLC (BRX Transportation), and BRX Acquisition Sub, Inc. (BRX 
Acquisition), obtained an exemption to

[[Page 15766]]

acquire control of Pioneer and the Pioneer Railroads. See Brookhaven 
Rail Partners, LLC--Control Exemption--Pioneer Railcorp, FD 36306, slip 
op. at 1 (STB served June 21, 2019) (84 FR 29,276).
    On October 22, 2020, in Docket No. FD 36451, Baupost and Infravest 
Managers filed a verified notice of exemption under 49 CFR 1180.2(d)(2) 
to acquire indirect control of Pioneer and the Pioneer Railroads by 
acquiring a majority equity interest in BRX Transportation. (See 
Baupost Verified Notice 1-4, FD 36451.) Baupost and Infravest Managers 
identified the current owner of the majority equity interest in BRX 
Transportation as ``an affiliate of Related Infrastructure.'' (Id. at 
3-4.) In a supplement filed on November 2, 2020, Baupost and Infravest 
Managers \2\ stated that, following the 2019 filing of the verified 
notice of exemption in Docket No. FD 36306 but before the filing of the 
verified notice in Docket No. FD 36451, two additional transactions had 
taken place. First, Related Infrastructure Acquisitions LLC (Related 
Acquisitions) transferred its interest in BRX Transportation to Related 
Infrastructure BRX Holdings LLC (Related BRX Holdings).\3\ (Baupost 
Suppl. 2, Nov. 2, 2020, FD 36451.) Second, Related Infrastructure 
transferred its interest in Related BRX Holdings to Related 
Infrastructure Holdings LLC (Related Infrastructure Holdings), which 
now ``directly owns and controls Related BRX Holdings.'' (Id.) The 
supplement further stated that Related Infrastructure and Related 
Infrastructure Holdings are subsidiaries of Related Fund Management, 
(id.), and the verified notice in Docket No. FD 36306 identified 
Related Fund Management as a subsidiary of Related Companies, L.P. 
(Related Companies), (Brookhaven Verified Notice 2 n.2, June 7, 2019, 
Brookhaven Rail Partners, LLC--Control Exemption--Pioneer Railcorp, et 
al., FD 36306).
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    \2\ The supplement was filed by Baupost and US Infravest 
Managers LP, but facts regarding Related Infrastructure and its 
affiliates were verified by Richard O'Toole, Vice President of 
Related Fund Management, LLC (Related Fund Management). (See Baupost 
Suppl. 5, Nov. 2, 2020, FD 36451.)
    \3\ Baupost and Infravest Managers stated that, when the 
verified notice was filed in Docket No. FD 36306, Related 
Acquisitions held the majority ownership interest in BRX 
Transportation, and ``Related Infrastructure--the entity authorized 
to control Pioneer and the Pioneer Railroads through that 
proceeding--directly owned and controlled Related Acquisitions.'' 
(Baupost Suppl. 2, Nov. 2, 2020, FD 36451.)
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    In a decision served November 25, 2020, the Board postponed the 
effective date of the exemption sought by Baupost and Infravest 
Managers in Docket No. FD 36451, held that proceeding in abeyance, and 
directed Related Infrastructure Holdings, Related Fund Management, and 
Related Companies (and any other entity or individual that controls 
Related Companies, as appropriate) to explain why Board authority was 
not required for the two transactions that occurred in 2019, or, if 
they believe such authority was needed, to seek after-the-fact 
authority under 49 U.S.C. 11323 to control Pioneer and the Pioneer 
Railroads. See Baupost Grp., L.L.C.--Control Exemption--Pioneer 
Railcorp, FD 36451 et al., slip op. at 3 (STB served Nov. 25, 2020).
    On December 2, 2020, RFM filed its verified notice of exemption, 
identifying itself as ``the highest person currently in the corporate 
chain of control,'' (RFM Verified Notice 2, FD 36306 (Sub-No. 1) et 
al.), and elaborating on the transactions described in Baupost and 
Infravest Managers' November 2, 2020 supplement. As stated by RFM, when 
the notice of exemption in Docket No. FD 36306 was filed on June 7, 
2019, ``Related Companies controlled Related Fund Management, which 
controlled Related Infrastructure, which controlled Related 
Acquisitions, which controlled BRX Transportation.'' (Id.) Therefore, 
according to RFM, ``Related Companies, as the ultimate controlling 
party, should have sought control authority . . . in FD 36306.'' (Id. 
at 3.)
    RFM stated, however, that it is the proper party to file the 
verified notice of exemption because of the second transaction that 
occurred in 2019--the transfer of the ownership interest in Related BRX 
Holdings from Related Infrastructure to Related Infrastructure 
Holdings--which RFM claims was part of a ``broader intracompany 
reorganization.'' (Id. at 3-4.) RFM states that, in the reorganization, 
Related Companies formed RFM; RFM formed a subsidiary, Related 
Infrastructure Holdings Investor LLC (Related Infrastructure Investor); 
Related Infrastructure Investor formed a subsidiary, Related 
Infrastructure Holdings; and Related Infrastructure's interest in 
Related BRX Holdings was transferred to Related Infrastructure 
Holdings. (Id. at 4.) As a result, RFM replaced Related Companies as 
``the ultimate controlling party.'' (Id. at 3-4.) According to RFM, it 
is ``owned by equity holders of Related Companies,'' and Related 
Companies and Related Fund Management no longer have any ownership 
interest in entities controlling BRX Transportation, Pioneer, or RFM. 
(Id. (footnote omitted).) RFM also noted that none of its equity owners 
have control of Related Companies or RFM. (Id. at 4 n.4.)
    On December 3, 2020, Baupost and Infravest Managers filed a letter, 
which included the agreement through which Baupost and Infravest 
Managers are acquiring Pioneer and the Pioneer Railroads, stating that 
the parties ``expect to consummate the transaction shortly after the 
Board allows the exemption in this proceeding to take effect.'' 
(Baupost Letter 1, Dec. 3, 2020, FD 36451.) Baupost and Infravest 
Managers also requested that the Board remove Docket No. FD 36451 from 
abeyance and allow the exemption to take effect promptly or, at the 
latest, no later than the day that the Board ``resolves the issues 
regarding current control of Pioneer.'' (Id.)
    In a decision served December 28, 2020, the Board held RFM's notice 
of exemption in abeyance and directed RFM to provide additional 
information. See RFM HoldCo LLC, FD 36306 (Sub-No. 1) et al., slip op. 
at 5. The Board found that, although RFM implied that it acquired 
control of Pioneer and the Pioneer Railroads when Related 
Infrastructure transferred its interest in Related BRX Holdings to 
Related Infrastructure Holdings, the organizational chart provided by 
RFM depicted both Related Infrastructure and Related Infrastructure 
Holdings as being under RFM's control. Id. at 4. Additionally, the 
Board noted that neither of the agreements provided by RFM appeared to 
be relevant to the transaction in which it acquired control of Pioneer 
and the Pioneer Railroads. Id.
    On January 6, 2021, RFM filed a supplement to its notice clarifying 
when it acquired control of Pioneer and the Pioneer Railroads. 
According to RFM, ``[o]n December 13, 2019, the ownership interests in 
Related Fund Management were distributed to the owners of Related 
Companies and on the same date, immediately following that 
distribution, were contributed by those owners to RFM in exchange for 
equity interests in RFM.'' (RFM Suppl. 2, FD 36306 (Sub-No. 1) et al.) 
On February 17, 2021, Baupost and Infravest Managers submitted a letter 
in Docket No. FD 36451 requesting that the proceeding be removed from 
abeyance and the exemption granted with an effective date in advance of 
the ``End Date'' in the parties' purchase agreement.

Discussion and Conclusions

    Under 49 U.S.C. 11323(a)(4), the ``[a]cquisition of control of at 
least 2 rail carriers by a person that is not a rail carrier'' requires 
Board authorization.

[[Page 15767]]

The verified notices of exemption at issue in these proceedings were 
submitted under the class exemption procedures found at 49 CFR 
1180.2(d)(2), which provide an expedited process for obtaining control 
authority under 11323. These streamlined class exemption procedures are 
reserved for transactions involving routine, uncomplicated, and non-
controversial matters, and which do not raise substantial factual and 
legal issues. See S. San Luis Valley R.R.--Acquis. & Operation 
Exemption--Iowa Pac. Holdings, LLC, FD 35586 et al., slip op. at 2 (STB 
served Feb. 10, 2012) (rejecting notice of exemption raising 
substantial questions about prior acquisitions); V & S Ry.--Aban. 
Exemption--in Kiowa Cnty., Colo., AB 603 (Sub-No. 3X), slip op. at 2 
(STB served June 17, 2014).
    The Verified Notices of Exemption. The verified notice filed by RFM 
and the verified notice filed by Baupost and Infravest Managers will be 
rejected because both matters are sufficiently complicated and non-
routine to make them inappropriate for consideration under the 
streamlined class exemption procedures of 49 CFR 1180.4(g). Both 
proceedings involve the unauthorized acquisitions of control of Pioneer 
and the Pioneer Railroads by Related Companies and entities within 
RFM's corporate family. RFM acquired control of Pioneer and the Pioneer 
Railroads, without Board authorization, from Related Companies, which 
itself also did not have Board authorization to control Pioneer and the 
Pioneer Railroads. (See RFM Verified Notice 3, FD 36306 (Sub-No. 1) et 
al.) Baupost and Infravest Managers are seeking to acquire control of 
Pioneer and the Pioneer Railroads from Related Infrastructure Holdings, 
a subsidiary of RFM, which does not currently have authority to control 
Pioneer and the Pioneer Railroads. Although RFM has sought after-the-
fact control authority, Related Companies has not. RFM has argued both 
that Related Companies need not seek after-the-fact control authority, 
and that the Board should grant that authority to Related Companies 
through the Board's streamlined class exemption procedures even though 
Related Companies did not itself request it.\4\ (RFM Verified Notice 5 
n.6, FD 36306 (Sub-No. 1) et al.) The facts cited during these 
proceedings, as described in detail above, demonstrate that these 
matters are not routine and require scrutiny by the Board outside of 
the streamlined class exemption procedures. See S. San Luis Valley 
R.R., FD 35586 et al., slip op. at 2-3. Therefore, the verified notices 
in Docket Nos. FD 36451 and FD 36306 (Sub-No. 1) will be rejected.
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    \4\ RFM was formed by equity owners of Related Companies, but 
RFM and Related Companies are not under common control because the 
equity owners do not have control of either Related Companies or 
RFM. (RFM Verified Notice 3-4 & n.4, FD 36306 (Sub-No. 1) et al.)
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    The Board also notes that the information provided during the 
course of these proceedings has at times been incomplete or 
inaccurate.\5\ For example, Baupost and Infravest Managers, in their 
notice, identified the entity from which they were acquiring control of 
Pioneer and the Pioneer Railroads as ``an affiliate of'' Related 
Infrastructure, without further detail. (See Baupost Verified Notice 3, 
FD 36451.) Later, the November 2, 2020 supplement filed in Docket No. 
FD 36451 provided incorrect information that identified Related 
Infrastructure Holdings as a ``subsidiar[y] of Related Fund Management 
LLC,'' notwithstanding that the facts in the supplement ``regarding 
Related Infrastructure LLC and its affiliates'' were verified by an 
official at Related Fund Management. (See Baupost Suppl. 1-2, FD 36451, 
Nov. 2, 2020, FD 36451.) Only after the Board postponed the effective 
date of the exemption in Docket No. FD 36451 and requested that Related 
Companies seek acquisition authority did the Board learn that Related 
Companies had transferred control of Pioneer and the Pioneer Railroads 
to RFM. RFM, for its part, filed a verified notice that failed to 
identify the date on which RFM acquired control of Pioneer and the 
Pioneer Railroads, which was later cured through its January 6 
supplement. While the record does not indicate bad faith by these 
parties, inaccuracies and omissions such as these raise questions that 
often cannot be adequately addressed under the streamlined class 
exemption procedures. It is important for parties to ensure that their 
filings in exemption (and other) proceedings are accurate and complete. 
Nevertheless, as discussed below, the Board has now received from the 
parties adequate information for the Board to assess, sua sponte and 
pursuant to the exemption standard set forth at 49 U.S.C. 10502(a), the 
appropriateness of granting exemptions in these proceedings.\6\
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    \5\ Given the Board's finding that the class exemption 
procedures are inappropriate in light of the facts and 
circumstances, it need not address whether the notices were also 
false or misleading. See, e.g., 49 CFR 1180.4(g)(1)(ii).
    \6\ In granting acquisition authority sua sponte, the Board 
would effectively proceed as though the parties had formally 
petitioned for exemption. The Board will consider below the value of 
requiring such petitions at this stage of the proceedings and the 
harm that could arise from the ensuing delay.
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    The Sua Sponte Exemptions. As noted, the Board has now received 
multiple filings in these proceedings providing information about the 
transactions involving Related Companies and RFM that occurred without 
Board authority. Although there does not appear to be bad faith, this 
does not excuse the failures to obtain Board authorization; and while 
RFM has now sought to cure the defect, the Board remains troubled that 
the parties did not adequately consider the required authorizations at 
the appropriate time.
    When it rejects verified notices in non-routine or controversial 
cases, the Board often requires parties to seek the necessary authority 
by petition for exemption or application. Here, however, an extensive 
record has already been developed through the supplemental pleadings. 
Additionally, the Board is mindful of the fact that the proposed 
acquisition by Baupost and Infravest Managers to acquire Pioneer and 
the Pioneer Railroads is also pending before the Board. That 
transaction, but for the failures of the selling entity (RFM and its 
subsidiaries) discussed above, would have met the standards for the 
expedited class exemption process. To require RFM to file a petition 
for exemption or application to remedy the prior unauthorized 
transactions would further delay, and possibly frustrate, Baupost and 
Infravest Managers' proposed transaction. (Baupost Letter 1, Feb. 17, 
2020, FD 36451.) No party has sought to oppose Baupost and Infravest 
Managers' proposed acquisition of control of the Pioneer Railroads, and 
one of the stated goals of that transaction is to ``improve Pioneer's 
efficiency, financial strength, and ability to meet the needs of 
shippers.'' (Baupost Verified Notice 5, FD 36451.) Baupost argues that 
further delaying its acquisition would, among other things, ``affect 
the ability of Pioneer and the Pioneer Railroads to accelerate capital 
expenditures.'' (Baupost & Infravest Managers Letter 2, Dec. 3, 2020, 
FD 36451.)
    For the reasons discussed above and based on the particular facts 
of this case, the Board concludes that it is appropriate to consider 
granting the exemptions sua sponte pursuant to 10502. See, e.g., BNSF 
Ry.--Pet. for Declaratory Order, FD 35164 et al., slip op. at 10 (STB 
served May 20, 2009); Borealis Infrastructure Trust Management--Acquis. 
Exemption--Detroit River Tunnel Co., FD 33984 et al., slip op. at 6 
(STB served Dec. 19, 2001). The Board will consider here the merits of 
the exemptions requested in these dockets and, as discussed further

[[Page 15768]]

below, will grant the exemptions sua sponte.
    As RFM, Baupost, and Infravest Managers are each noncarriers, their 
acquisitions of control of the Pioneer Railroads require prior Board 
approval under 49 U.S.C. 11323(a)(4). Because the acquisitions of 
control do not involve the merger or control of at least two Class I 
railroads, approval of the transactions is governed by 49 U.S.C. 
11324(d). However, under 49 U.S.C. 10502(a), the Board must exempt a 
transaction or service from regulation upon finding that: (1) 
Regulation is not necessary to carry out the rail transportation policy 
(RTP) of 49 U.S.C. 10101; and (2) either (a) the transaction or service 
is of limited scope, or (b) regulation is not needed to protect 
shippers from the abuse of market power.
    Here, exemptions from the prior approval requirements of sections 
11323-25 are consistent with 10502(a). Detailed scrutiny of the 
acquisitions of control of the Pioneer Railroads in each docket is not 
necessary to carry out the RTP. An exemption from the application 
process would promote a fair and expeditious regulatory decision-making 
process, minimize the need for Federal regulatory control, reduce 
regulatory barriers to entry, and result in more expeditious handling 
of this proceeding. See 49 U.S.C. 10101(2), (7), (15). Other aspects of 
the RTP would not be adversely affected.
    Regulation of these transactions is not needed to protect shippers 
from the abuse of market power. RFM states that it ``does not own or 
control any other carriers other than the Pioneer Railroads, nor did 
it, or its equity owners, at the time of its formation.'' (RFM Verified 
Notice 4 n.5, FD 36306 (Sub-No. 1) et al.) Accordingly, RFM's 2019 
acquisition of control of Pioneer and the Pioneer Railroads did not 
create any adverse change in competition among rail carriers or between 
rail carriers and other modes. For their part, Baupost and Infravest 
Managers also state that they ``are not themselves rail carriers and do 
not currently control any rail carriers,'' (Baupost Verified Notice 4, 
FD 36451), so their proposed acquisition of Pioneer and the Pioneer 
Railroads similarly would not adversely affect the competitive 
landscape so as to require regulation to protect shippers from an abuse 
of market power.\7\
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    \7\ Because this decision finds that regulation is not necessary 
to protect shippers from the abuse of market power, the Board need 
not determine whether the transaction is limited in scope. See 49 
U.S.C. 10502(a)(2).
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    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. Section 11326(c), however, 
precludes the Board from imposing labor protections for transactions 
involving only Class III rail carriers. Because all the Pioneer 
Railroads are Class III carriers, the Board may not impose labor 
protections here.
    In light of Baupost's and Infravest Managers' request regarding the 
effective date, the exemptions will be effective on March 26, 2021. 
Petitions to stay will be due by March 24, 2021.
    The transactions are categorically excluded from environmental 
review under 49 CFR 1105.6(c)(1) and from the historic reporting 
requirements under 49 CFR 1105.8(b).
    It is ordered:
    1. The verified notices of exemption in Docket Nos. FD 36306 (Sub-
No. 1) and FD 36451 are rejected.
    2. In Docket No. FD 36306 (Sub-No. 1), under 49 U.S.C. 10502, the 
Board exempts from the prior approval requirements of 49 U.S.C. 11323-
25 RFM's 2019 acquisition of control of the Pioneer Railroads.
    3. In Docket No. FD 36451, under 49 U.S.C. 10502, the Board exempts 
from the prior approval requirements of 49 U.S.C. 11323-25 Baupost's 
and Infravest Managers' acquisition of control of the Pioneer Railroads 
from RFM.
    4. Notice of the exemptions will be published in the Federal 
Register.
    5. The exemptions will be effective on March 26, 2021. Petitions to 
stay will be due by March 24, 2021.
    Decided: March 18, 2021.
    By the Board, Board Members Begeman, Fuchs, Oberman, Primus, and 
Schultz. Board Member Primus dissented with a separate expression.
    Board Member Primus, dissenting:
    This case is extremely troubling and lays bare gaps in compliance 
that I am not willing to excuse. The focus of my displeasure is not 
directed toward Baupost and Infravest Managers, but rather Related 
Companies and RFM. When the history of Related Companies and RFM is 
taken into account, specifically their inability to provide accurate 
and complete information to the Board with respect to ownership, what 
we have before us is at best a comedy of errors and at worst a blatant 
disregard for the Board's role as the economic regulator of the rail 
industry.
    The Board was faced with two notices of exemption involving a chain 
of unauthorized transactions. Details surrounding the history of the 
ownership of Pioneer and the Pioneer Railroads is murky and 
unnecessarily complicated. Upon further review, it was revealed that 
Related Companies never obtained Board authorization to acquire Pioneer 
and the Pioneer Railroads. Similarly, RFM skirted Board authority when 
it acquired the railroad entities from Related Companies. Only now, 
when Baupost and Infravest Managers have come before the Board to 
acquire control of these railroad entities, has RFM decided to step 
into the light.
    Failure to obtain the required Board authority lies squarely with 
RFM. Both RFM and its subsidiaries (and Related Companies before it) 
did not bother to adhere to 49 U.S.C. 11323, which clearly requires an 
entity seeking to purchase/acquire a railroad to obtain Board 
authority. Given the fact that the proposed acquisition involves 
unauthorized transactions, it was incumbent upon the parties to be 
forthcoming with accurate and complete information about the ownership 
and relationship of the numerous railroads involved in the proposed 
transaction. This clearly did not happen.
    Accordingly, I do not believe that the selling entity should be 
permitted to benefit or profit from such a transaction without first 
curing its unauthorized acquisition. While RFM has asked for after-the-
fact authority, it has done so through the Board's streamlined class 
exemption procedures, which are reserved for transactions involving 
routine, uncomplicated, and non-controversial matters, and not 
appropriate here. Moreover, Related Companies has not sought after-the-
fact authority for its unauthorized acquisition.
    My hope is that, moving forward, the Board will begin to look at 
ways to effectively promote greater compliance and transparency as it 
relates to the licensing of rail activities. For those who continue to 
operate outside the rules, stronger enforcement, including the 
administering of severe penalties when appropriate, should prevail.
    For these reasons, I respectfully dissent.

Aretha Laws-Byrum,
Clearance Clerk.
[FR Doc. 2021-06066 Filed 3-23-21; 8:45 am]
BILLING CODE 4915-01-P