741 F.3d 163
D.C. Cir.2014Background
- BNSF transported coal for Western Fuels Association and Basin Electric under a long-term contract until 2004; after negotiations failed BNSF set common-carrier rates and WFA challenged them as unreasonable before the Surface Transportation Board (Board).
- The Board uses a Stand‑Alone‑Cost (SAC) test requiring allocation of revenues for cross‑over traffic between a hypothetical stand‑alone railroad (SARR) and incumbent carriers; allocation method changed over time from Modified Straight‑Mileage Prorate (MSP) to Average Total Cost (ATC).
- ATC produced “below‑cost” allocations for some on‑SARR movements; the Board adopted Modified ATC to first cover variable costs for on/off‑SARR portions then allocate remaining revenue by relative average total costs.
- WFA revised its SARR after adoption of Modified ATC to eliminate most below‑cost traffic; the Board applied Modified ATC and found BNSF’s rates unreasonably high, awarding relief.
- On prior review (WFA I), this Court remanded for the Board to address BNSF’s double‑counting/arbitrary‑and‑capricious objection to Modified ATC; on remand the Board declined to consider BNSF’s proportionality/Alternative‑ATC critique and upheld Modified ATC; the Board later promulgated a rule adopting a form of Alternative ATC for future cases.
- The D.C. Circuit majority holds the Board erred by failing to address BNSF’s proportionality argument (preserved from earlier proceedings) and vacates and remands; the dissent would have denied review, viewing the remand as limited to the double‑counting issue and BNSF’s new arguments as forfeited.
Issues
| Issue | Plaintiff's Argument (BNSF) | Defendant's Argument (Board) | Held |
|---|---|---|---|
| Whether the Board forfeited BNSF’s proportionality/Alternative‑ATC challenge on remand | Proportionality argument was preserved in prior filings and logically follows from the double‑counting objection; Modified ATC over‑corrects ATC and is disproportionate after WFA removed below‑cost traffic | The remand in WFA I was limited to addressing the double‑counting objection; proportionality/Alternative‑ATC were not specifically directed and thus were outside the scope | Court: BNSF preserved the proportionality claim; Board erred by refusing to address it and must do so on remand |
| Whether Modified ATC is arbitrary and capricious because it double counts variable costs and fails to account for economies of density | Modified ATC double counts variable costs for crossover traffic with revenues above variable cost and thus can irrationally over‑allocate revenue to the SARR | Board defended Modified ATC as a justified response to ATC’s below‑cost allocations and maintained it appropriately addresses the problem | Court: WFA I required the Board to address double‑counting in the first instance; this substantive challenge remains to be resolved on remand |
| Whether the Board should have held the case in abeyance pending rulemaking adopting Alternative ATC | Board should have stayed the case so the new rule could be considered and possibly applied retroactively to this dispute | Board declined abeyance to avoid encouraging late litigation theories, protect finality, and prevent further delay from redrafting SARRs | Court: Majority remanded on proportionality; it criticized Board for not explaining why adopted Alternative ATC would not apply here, but did not order abeyance; dissent would have upheld Board’s discretion to deny abeyance |
| Standard of review: whether Board’s failure to respond made its decision arbitrary and capricious | Agency must respond meaningfully to objections and show a rational connection between facts and choice; failure to address proportionality violates APA | Board treated remand scope narrowly and believed it complied by addressing double‑counting | Court: Under APA/State Farm the Board must examine relevant data and meaningfully respond; failure here requires vacatur and remand |
Key Cases Cited
- BNSF Ry. Co. v. Surface Transp. Bd., 604 F.3d 602 (D.C. Cir. 2010) (prior opinion remanding for Board to address double‑counting objection to Modified ATC)
- BNSF Ry. Co. v. Surface Transp. Bd., 526 F.3d 770 (D.C. Cir. 2008) (describing SAC test and cross‑over revenue allocation issues)
- Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (agency action must contain a rational connection between facts found and decision)
- Burlington Truck Lines v. United States, 371 U.S. 156 (1962) (same principle on reasoned decisionmaking)
- PSEG Energy Resources & Trade LLC v. FERC, 665 F.3d 203 (D.C. Cir. 2011) (agency failure to respond meaningfully to objections renders decision arbitrary and capricious)