Was the settlement at Burlington Northern Railway Fair

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Last updated: April 27, 2019

On January 13, 1961, the Burlington Northern and Santa Fe Railway Company earlier regarded as Burlington Northern Railroad Company — BNRR was included in the state of Delaware, in the form of an associate of Burlington Northern Santa Fe Corporation — BNSF.

By 1995, the shareholders of two companies Burlington Northern Inc — BNI and Santa Fe Pacific Corporation — SFP have been turned into the stockholders of BNSF in pursuance of a business amalgamation of the two. As a mark of such amalgamation, BNSF was constituted to perform as the parent company of BNI and SFP. BNI and SFP each had possessed the number one railroad like the BNRR and the Atchison, Topeka and Santa Fe Railway Company etc. As the trend reveals there was a merger of BNI with SFP on December 30, 1996 and on December 31, 1996, it was merged with BNRR to become BNRR and become known as the Burlington Northern and Santa Fe Railway Company. The parent company SFP was merged with BNRR on January 2, 1998 with and into BNSF Railway.

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An associate of BNSF Burlington Northern Santa Fe British Columbia, Ltd. — BNSF BC was incorporated in BNSF Railway. (Edgar Online, 2002)Presently the BNSF Railway functions as the largest railroad system in the United States. The rail operations are governed by the regulatory measures imposed by the Surface Transportation Board — STB, the Federal Railroad Administration, existing under the Department of Transportation in United States, the occupational safety and Health Administration — OSHA and state regulatory agencies. The State Transport Board, earlier known as Interstate Commerce Commission — ICC oversees various issues involving the disputes and complaints associated with certain rates, routes and services, the sale or abandonment of rail lines, applications for line extensions and construction and consolidation or merger with or acquisition of regulation of, rail common carriers. The result of the STB proceedings has a tremendous impact on the costs and profitability of the activities of BNSF Railway. (Edgar Online, 2002)The Department of Transportation and Occupational Safety and Health Administration have been delegated with the powers to enforce several safety and health related measures in connection with the rail operations under several federal statutes. The state agencies control some facets of rail operations with regard to the health and safety in the fields not anticipated by the federal laws.

The rail activities of BNSF Railways and also that of its competitors are prone to have far reaching federal, state and local environmental regulations. Such regulations incorporate the releases to water bodies, air emissions, toxic substances, and the creation, handling, storage, transportation, and clearance of waste and unsafe materials. Such regulations have the impact of rising cost and liabilities associated with rail operations. (Edgar Online, 2002)The environmental risks are also intrinsic in the rail operations, as a result of the regular transportation of chemicals and other unsafe materials. It is also common that many of the land holdings of BNSF Railway are and have been utilized for industrial or transportation related activities or granted on lease to several commercial and industrial companies, the activities of which in turn give rise to discharges onto the property. Therefore, the BNSF Railway is presently associated and will frequently are succumbed to environmental cleanup and enforcement actions.

Specifically, the federal Comprehensive Environmental Response, Compensation and Liability Act — CERCLA, also regarded as the ‘Superfund’ law, normally imposes joint and several liability for cleanup and enforcement costs, without taking into consideration the fault or the legality of the original conduct, on current and former owners and operators of a site. In this manner, BNSF Railway may be liable under CERCLA and other federal and state statutes for full or a portion of the costs to clean up sites at which substances may have been discharged by BNSF Railway, its present lessees, earlier owners or lessees of properties, or other third parties. (Edgar Online, 2002)A settlement between the Burlington Northern Railroad Company — BNRR and the bond holders of Northern Pacific Railroad was approved by a federal court in 1987. The settlement directed the BNRR for payment of about $35.5 million in return for variations in the prime covenants in the bond indentures. Such agreement was considered to be the last lesson of the story that exemplifies in detail one of the agency costs of bond covenants, foregone opportunities, or loss of managerial prudence. The realities of BNRR with regard to the stringent indenture provisions of the Northern Pacific bonds is considered to be an interesting illustration of the agency-cost transaction in bond indenture.

Irrespective of the fact that the stringent covenants decrease the uncertainty of bond holders about the future actions of managers- and therefore enhances the sale proceeds of the debt, the cost of the indenture decreases the restraints is considered to be a loss of managerial discretion. While such transactions have been considered in the financial literature, there is only a little evidence on their impacts. (Laber, 1992)The Department of Justice and the Environmental Protection Agency, on April 4, 1995 upheld the claims of about $1.5 million civil settlement of Oil Pollution Act against the Burlington Northern Railroad Company. The claims come out from three different oil and hazardous waste spills due to train derailments. On June 30, 1992, after the derailment of a BN train near the town of Superior, Wisconsin, spilling of about 22,000 gallons of aromatic concentrated into Nemadji River. Such concentrates involved several volatile organic compounds like benzene and toluene, two hazardous substances.

Besides two derailments occurred in January and May, 1993 one, near the Wendover Canyon and Guernsey and another near Worland. (Sweeney; Smith, 1995)Such accidents caused spilling of more than 3400 barrels of oil into the North Platte River and a tributary of the Bighorn River. One of such cases involved forced evacuation of about 50,000 people from the adjoining Wisconsin and Minnesota towns. As per the settlement, Burlington Northern was willing to part with $1.5 million that included a civil penalty under the provisions of Oil Pollution Act amounting to $1.1 million. This is considered to be the largest single penalty ever awarded under the statute in any single case. The compensation amount of $1.

1 million paid by BN includes $1.1 million civil penalty, $260,000 to reimburse EPA and other federal agencies for their costs incurred in response to the Wisconsin spill and an amount of $140,000 contribution to a fund managed jointly by the Department of Interior, the Bad River Band of Lake Superior Chippewas and the Red Cliff Band of Lake Superior Chippewas and the Red Cliff Band of Lake Superior Chippewas for restoration of the damages to natural resources caused by the Nemadji Spill. (Sweeney; Smith, 1995)For studying the internal rail defects of the type associated in the Nemadji and Worland derailments, the consent decree subsequently filed in a Federal Court in Madison, Wisconsin also claim Burlington Northern to spend $1.2 million for the purpose of derailment prevention technology.

The company was required to buy three ultrasonic rail inspection cars that will enhance the capacity of the company to find out the rail defects and avoid derailments like those that resulted in the three spills. The settlement involving such a heavy penalty is justified by Lois J. Schiffer, the Assistant Attorney General of Environment and Natural Resources Division taking into consideration the rigorous enforcement of the Oil Pollution Act.

The Burlington Northern on the other hand also was willing to avoid, not pollute and not to struggle. (Sweeney; Smith, 1995)Steven A Herman, the Assistant Administrator for Enforcement and Compliance Assurance of Environmental Protection Agency opined the settlement to be a good illustration of the way federal government views the creative settlement features to ensure prevention and improve future adherence. Peggy A. Lautenschalager of Madison Wisconsin, opined that the settlement conditions on such issue not only imposed as penalty on Burlington Northern for the spills, but the crucial point is it provided future remedial safeguards that will go a long way in avoiding the probable similar discharges.

Besides a portion of the settlement funds will be earmarked for reinstatement of natural resources, which have been damaged out of the spill. (Sweeney; Smith, 1995) The settlement of ballast is not considered to be an unusual reality in railroad track maintenance, however, settlement generally come out in a steady form with inadequate degree to derail a train or result in a serious lurch. (United States National Transportation Safety Board; United States Bureau of Surface Transportation Safety, 2000)The Department of Justice, U.S. Environmental Protection Agency — EPA, Department of the Interior — DOI, and the State of New Mexico recently come out with two settlement agreements according to which the Burlington Northern and Santa Fe Railway Company — BNSF is required to cleanup the AT & SF Albuquerque Superfund Site in Albuquerque, New Mexico and compensate the EPA, DOI and the State of New Mexico for costs incurred in rejuvenating the site. The former companies prior to constitution of BNSF, the Atchison, Topeka and Santa Fe Railway Co.

, was running a wood treatment plant at the Site during the period 1908 to 1972. Such activities gave rise to the contamination of soil and groundwater at the site with creosote and other contaminants, incorporating a plume of dense non-aqueous phase liquid — DNAPL in the upper region of the Santa Fe Formation aquifer. (Department of Justice, 2004)EPA and the state of New Mexico have estimated that the cleanup was to cost $64 million.

BNSF has also willing to pay DOI and the State of New Mexico about $1.1 million to rejuvenate the damaged natural resources. Thomas L. Sasonetti, Assistant Attorney General for the Environment and Natural Resources Division, described the settlement to the result of the hard work of the concerned parties and the agreement of the company to be accountable to ensure safeguard of human health and environment. The Administrator of EPA Region 6, Richard Greene complemented the commitment of BNSF to such significant clean up and the astounding collaboration between the federal and state agencies associated with the settlement.

According to Green the settlement sets a paradigm of state and federal cooperation and teamwork to attain the positive environmental outcomes. (Department of Justice, 2004) The Burlington Northern and Santa Fe Railway entrusted the contract for cleaning up the Environment Protection Agency Superfund site in the South Valley to the TRC, a Connecticut based environmental engineering company with its offices in Albuquerque. (Superfund site gets contractor)

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