Attorney General Edwin Meese III told the Senate Judiciary Committee yesterday that "there has not been even as much as an appearance of a conflict of interest" in the Justice Department's antitrust analysis of the Transportation Department's plan to sell Conrail to Norfolk Southern Corp.
Meese's comments were in a letter responding to a request from Committee Chairman Strom Thurmond (R-S.C.). Thurmond asked Meese to review the matter when it was learned that Norfolk Southern had retained tax expert John J. Salmon from the same law firm that J. Paul McGrath, the Justice Department's departing antitrust chief, was joining.
Meese wrote that Associate Attorney General-designate William Bradford Reynolds had determined that the antitrust analysis was completed in January, well before Norfolk Southern retained Salmon, a relationship severed last week after it became known at a Judiciary Committee hearing. Moreover, Meese said, there were no discussions about Norfolk Southern with the law firm by McGrath or other members of Justice's antitrust division.
Thurmond told a hearing yesterday that, "With this resolved, McGrath's analysis stands on its own merits." The antitrust division concluded that a Norfolk Southern acquisition of Conrail will pass Justice review if there is a divestiture of some track and track-use rights. Norfolk Southern is making arrangements with two small railroads to meet those requirements.
Sen. Howard Metzenbaum (D-Ohio), who brought the conflict-of-interest issue into the hearings, said that Reynolds' review of the facts "frankly does not satisfy this senator."
Metzenbaum spent the rest of the morning asking questions about the tax consequences of Norfolk Southern's purchase and why the Transportation Department had not performed a number of studies similar to those the Interstate Commerce Commission would require if it were reviewing a railroad merger.
The federal government's position is that Norfolk Southern is receiving only the tax breaks that any buyer would receive under the tax code. A criticism that Metzenbaum and others have raised is that Norfolk Southern might be able to reduce its own taxes through deductions generated by Conrail.
Metzenbaum asked Deputy Federal Railroad Administrator Christopher Rooney if the Transportation Department would be willing to renegotiate its memorandum of understanding with Norfolk Southern so that Norfolk Southern would forego its tax breaks. After an exchange that found Metzenbaum banging on the table, Rooney replied, "I will inquire and come back. I'm a little far down the totem pole to make that decision."
On the the question of ICC-type studies, Rooney reminded Metzenbaum that Congress had passed a law specifically excluding a sale of Conrail from ICC proceedings.