Justice Department antitrust chief J. Paul McGrath disqualified himself yesterday from "any further involvement" in the Reagan administration's plan to sell Conrail to Norfolk Southern Corp. after he was told by Sen. Howard Metzenbaum (D-Ohio) that he had an apparent conflict of interest.
That precipitated a letter from Sen. Strom Thurmond (R-S.C.), chairman of the Judiciary Committee, to Attorney General Edwin Meese III suggesting that "to remove any perception of impropriety, I suggest you consider having the appropriate official at the Department of Justice reevaluate the antitrust implications" of the proposed sale.
Meese said late yesterday, "I will, of course, review this matter and advise the chairman of the Senate Judiciary Commitee as he has requested."
If Meese accepts the suggestion, how he defines "reevaluate" will be of crucial importance to the future of the Reagan administration's Conrail sales plan. If a reevaluation goes back to square one, it could delay the process for months and conceivably dampen Norfolk Southern's enthusiasm for purchasing Conrail for $1.2 billion.
Norfolk Southern Chairman Robert B. Claytor has said that significant progress must be made by the end of the this year for his company to remain interested.
The conflict question arose after McGrath, assistant attorney general in charge of Justice's Antitrust Division, spent yesterday morning defending his department's position that antitrust problems with the Norfolk Southern purchase could be eliminated with appropriate divestitures.
McGrath is leaving Justice April 1 to rejoin Dewey, Ballantine, a law firm. Late in the morning, Metzenbaum told McGrath that Norfolk Southern had hired another new Dewey, Ballantine employe, John J. Salmon, former chief counsel for the tax-writing House Ways and Means Committee. He asked if McGrath had talked to Salmon about the Norfolk Southern/Conrail proposal.
"I have not discussed it with him or anybody else at Dewey, Ballantine," McGrath said. Claytor rose from the audience to tell Metzenbaum that "We have retained Mr. Salmon to advise us in technical tax matters, not as a lobbyist."
Later in the day, McGrath delivered a letter to Thurmond. It said in part that Salmon was hired in early March "to do tax lobbying for Norfolk Southern. Apparently he had not realized at the time I was involved in the matter."
He noted that the Justice Department report on antitrust implications of a Norfolk Southern purchase was delivered in January, two months earlier.
This all came after Sen. Arlen Specter (R-Pa.) spent almost two hours repetitiously questioning McGrath on the antitrust aspects of the sale. McGrath finally said to Specter in exasperation, "You can due-process this thing to death and perhaps kill it. I submit that would not be in the public interest."
The administration's legislation would immunize from antitrust actions a Norfolk Southern purchase of Conrail in the same manner final Interstate Commerce Commission action immunizes any railroad merger.
However, ICC merger approval takes at least 30 months, usually followed by court review. McGrath argued that the Justice Department has already done the same type of merger review it would do in an ICC proceeding, and that any Norfolk Southern divestitures would have to be reviewed by Justice to assure they solved the antitrust problems.