Union Pacific Railroad Co. v. STBUnion Pacific Railroad Co. v. STB
Submitted: December 13, 2023
Filed: August 20, 2024
SMITH, Chief Judge.
Congress has charged the Surface Transportation Board (Board) with resolving rate disputes between rail carriers and shippers when rates are not set by private contract. See
I. Background
A. Statutory Overview
The Board resolves rate disputes between rail carriers and shippers when rates are not set by private contract. See
If the rail carrier has market dominance, then the Board must next determine whether “the rate established by such carrier for such transportation [is] reasonable.”
(A) the amount of traffic which is transported at revenues which do not contribute to going concern value and the efforts made to minimize such traffic;
(B) the amount of traffic which contributes only marginally to fixed costs and the extent to which, if any, rates on such traffic can be changed to maximize the revenues from such traffic; and
(C) the carrier‘s mix of rail traffic to determine whether one commodity is paying an unreasonable share of the carrier‘s overall revenues,
recognizing the policy of this part that rail carriers shall earn adequate revenues, as established by the Board under section 10704(a)(2) of this title.
Finally, if the Board finds that the rail carrier‘s rate is unreasonable, “the Board may prescribe the maximum rate, classification, rule, or practice to be followed. The Board may order the carrier to stop the violation.”
maintain and revise as necessary standards and procedures for establishing revenue levels for rail carriers providing transportation subject to its jurisdiction under this part that are adequate, under honest, economical, and efficient management, for the infrastructure and investment needed to meet the present and future demand for rail services and to cover total operating expenses, including depreciation and obsolescence, plus a reasonable and economic profit or return (or both) on capital employed in the business. The Board shall make an adequate and continuing effort to assist those carriers in attaining revenue levels prescribed under this paragraph. Revenue levels established under this paragraph should—
(A) provide a flow of net income plus depreciation adequate to support prudent capital outlays, assure the repayment of a reasonable level of debt, permit the raising of needed equity capital, and cover the effects of inflation; and
(B) attract and retain capital in amounts adequate to provide a sound transportation system in the United States.
B. Methodologies for Determining a Rate‘s Reasonableness
In determining a rate‘s reasonableness, “almost all rate cases have proceeded under the Stand-Alone Cost test, sometimes referred to as the ‘SAC test.‘” CSX Transp., Inc. v. Surface Transp. Bd., 754 F.3d 1056, 1059 (D.C. Cir. 2014). This test requires the “complainants [to] design a hypothetical stand-alone railroad, sometimes referred to as an ‘SARR,’ which is ‘a fully efficient hypothetical competitor railroad that serves the complaining shipper and other traffic sharing common facilities.‘” Id. at 1059–60 (quoting CSX Transp., Inc. v. Surface Transp. Bd., 568 F.3d 236, 238 (D.C. Cir.), opinion vacated in part on reh‘g, 584 F.3d 1076 (D.C. Cir. 2009)). “[I]f the stand-alone railroad would generate revenues that ‘exceed[] the costs (including a reasonable profit) of running the stand-alone railroad,‘” then “[t]he Board will find a challenged rate unreasonable.” Id. at 1060 (second alteration in original) (quoting CSX Transp., 568 F.3d at 238–39).
1. Three-Benchmark Methodology
“SAC tests are complicated and costly . . . .” Id. As a result, Congress has required the Board to “maintain 1 or more simplified and expedited methods for determining the reasonableness of challenged rates” in cases involving smaller disputes with a rail carrier.
In addition to modifying the Three-Benchmark methodology over the years, the Board has “also created another simplified methodology, known as Simplifed-SAC, which determines whether a captive shipper is being forced to cross-subsidize other parts of the railroad‘s network.”
2. Final Offer Rate Review (FORR)
“Notwithstanding the Board‘s efforts to improve its rate review methodologies and make them more accessible, only a few Three-Benchmark cases have ever been brought to the Board, and no complaint has been litigated to completion under the Simplified-SAC methodology.”
Under FORR, the shipper initiates the case by filing a notice of intent and serving notice on the rail carrier.
Following briefing, the Board renders its decision.
parties’ final offers, “[t]he Board . . . take[s] into account . . . the RTP, the Long-Cannon factors in
After “find[ing] that the defendant carrier has market dominance, find[ing] the challenged rate unreasonable, and choos[ing] the complainant‘s offer (or the defendant‘s offer, if it is below the challenged
When the Board adopted FORR as a final rule, two of the five Board members dissented. 88 Fed. Reg. at 314–17. Board Member Patrick J. Fuchs concluded that “FORR is an evasion of the Board‘s fundamental responsibility because it makes the Board entirely dependent on litigants’ self-determined rate review methodologies, gives little meaningful guidance for those methodologies, and prohibits the Board from devising its own remedy where necessary.”
Board Member Fuchs rejected the Board‘s attempt to compare FORR to the Three-Benchmark methodology‘s use of “a final offer process for picking comparison groups.”
Board Member Michelle A. Schultz also dissented. She expressed her “deep legal and practical concerns about FORR, which [she] believe[d] prevents the Board from engaging in reasoned decision-making, fails to properly align risk between complainants and defendants, and could depress rail rates below what is reasonable.”
II. Discussion
These petitions for review challenge the Board‘s final rule adopting FORR and request vacatur of that rule. First, the petitioners argue that the Board lacks statutory authority to “prescribe railroad rates through [FORR,] a baseball arbitration scheme.” Pet‘rs’ Br. at 13. Second, the petitioners assert that “FORR is unconstitutionally vague” because rail carriers “do not know how the Board will determine what is ‘reasonable’ in any given case” considering “[t]he Board‘s refusal to establish a governing methodology in advance, or to provide any ascertainable standard for how it will make reasonableness determinations.”
Our task is to determine whether Congress statutorily authorized the Board to prescribe rail carrier rates through a rate-setting scheme like FORR. “Administrative agencies are creatures of statute. They accordingly possess only the authority that Congress has provided.” Nat‘l Fed‘n of Indep. Bus. v. OSHA, 595 U.S. 109, 117 (2022) (per curiam). “Congress . . . enacted the APA [(Administrative Procedure Act)] as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices.” Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244, 2261 (2024) (internal quotation marks omitted) (overruling Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984)). The APA sets forth judicial review of agency action. Id. It “directs that ‘[t]o the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.‘” Id. (quoting
Thus, in determining “whether an agency has acted within its statutory authority, as the APA requires,” we “must exercise [our] independent judgment.” Id. at 2273. “When interpreting a statute, we begin with the statute‘s plain language, giving words the meaning that proper grammar and usage would assign them. If the intent of Congress can be clearly discerned from the statute‘s language, the judicial inquiry must end.” United States v. Lester, 92 F.4th 740, 742 (8th Cir. 2024) (cleaned up). If confronted with a statutory ambiguity, we must “independently interpret the statute.” Loper, 144 S. Ct. at 2266. In exercising our “independent judgment,” we “may . . . seek aid from the interpretations of those responsible for implementing particular statutes. Such interpretations constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance consistent with the APA.” Id. at 2262 (internal quotation marks omitted); see also id. at 2273 (“Careful attention to the judgment of the Executive Branch may help inform that inquiry.“). We must “use every tool at [our] disposal to determine the best reading of the statute and resolve [any] ambiguity.” Id. at 2266.
We begin with the statute‘s plain language. The Board claims that
When the Board, after a full hearing, decides that a rate charged or collected by a rail carrier for transportation subject to the jurisdiction of the Board under this part, or that a classification, rule, or practice of that carrier, does or will violate [Part A, Subtitle IV of Title 49], the Board may prescribe the maximum rate, classification, rule, or practice to be followed.
(Emphases added.) In turn, Part A provides that “[i]f the Board determines, under [49 U.S.C. §] 107075 . . . , that a rail carrier has market dominance over the transportation to which a particular rate applies, the rate established by such carrier for such transportation must be reasonable.”
finds the rate unreasonable, it sets the maximum rate the railroad may charge. In setting that rate, the Board must permit the railroad to cover its costs ‘plus a reasonable and economic profit or return (or both) on capital employed in the business.‘” BNSF Ry. Co., 526 F.3d at 773 (emphasis added) (first citing
Is FORR consistent with the Board‘s statutory obligations? We hold that it is not because some of FORR‘s requirements conflict with the Board‘s statutory duties. Section 10704(a)(1) requires the Board to hold a “full hearing” before determining a rate‘s reasonableness. The threshold question we must answer is whether this “full hearing” is an adjudication to which the APA applies; if so, then certain procedural protections apply. “The APA itself mandates that its provisions govern certain administrative proceedings.” Portland Audubon Soc. v. Endangered Species Comm., 984 F.2d 1534, 1540 (9th Cir. 1993) (citing Marathon Oil Co. v. EPA, 564 F.2d 1253, 1261–64 (9th Cir. 1977); City of W. Chic. v. U.S. Nuclear Regul. Comm‘n, 701 F.2d 632, 641 (7th Cir. 1983) (collecting cases)). Section 554 of the APA “pertains to formal adjudications“; it “applies to ‘every case of adjudication required by statute to be determined on the record after [the] opportunity for an agency hearing.‘” Id. (alteration in original) (quoting
“The APA defines ‘adjudication’ broadly as an agency process leading to a final disposition ‘other than rulemaking.‘” Marathon Oil, 564 F.2d at 1263 (quoting
“At the opposite end of the pole are agency determinations that depend less on the resolution of factual disputes and more on the drawing of policy; such ‘rulemaking’ decisions must by necessity be guided by more informal procedures.” Id. (footnote omitted). “[R]ulemaking concerns policy judgments to be applied generally in cases that may arise in the future . . . .” Portland Audubon Soc., 984 F.2d at 1540. The APA‘s procedural protections are not necessary in proceedings conducted “for the purpose of promulgating policy-type rules or standards.” Marathon Oil, 564 F.2d at 1262 (internal quotation marks omitted).7
“We conclude that the first requirement of APA § 554(a) is satisfied.” Portland Audubon Soc., 984 F.2d at 1540. The Board is tasked with resolving rate disputes between rail carriers and shippers. See
As to the second § 554(a) requirement, “[a]lthough Section 554 specifies that the governing statute must satisfy the ‘on the record’ requirement, those three magic words need not appear for a court to determine that formal hearings are required.” Lane v. USDA, 120 F.3d 106, 108–09 (8th Cir. 1997) (quoting City of W. Chic., 701 F.2d at 641). For the APA‘s “formal, on-the-record hearing provisions” to apply, “Congress need only ‘clearly indicate its intent to trigger‘” them. Id. (quoting City of W. Chic., 701 F.22d at 641). Application of the procedural safeguards “rests on the
substantive character of the proceedings involved,” “[a]bsent congressional intent to the contrary.” Marathon Oil, 564 F.2d at 1263. “In summary, the crucial question is not whether particular talismanic language was used but whether the proceedings under review fall within that category of quasi-judicial proceedings deserving of special procedural protections.” Id. at 1264. A court‘s inquiry must be focused “on the nature of the administrative determination before [it].” Id.
We conclude that the second requirement of APA § 554(a) is satisfied. Although § 10704(a)(1) does not contain the “three magic words” of “on the record,” those words are not needed for us to determine that the APA‘s procedural protections apply. Lane, 120 F.3d at 108. Section 10704(a)(1) does require the Board to hold a “full hearing.” When adjudicating the rate dispute between the shipper and rail carrier, the Board is not engaging in rulemaking but instead is engaging in “an agency process leading to a final disposition” of the parties’ rate dispute. Marathon Oil, 564 F.2d at 1263.
As to the third § 554(a) requirement, “[w]herever the outer bounds of the ‘after opportunity for an agency hearing’ requirement may lie, . . . where . . . a statute provides that an adjudication be determined at least in part based on an agency hearing, that requirement is fulfilled.‘” Portland Audubon Soc., 984 F.2d at 1541. “The failure of Congress to provide for any hearing whatsoever within an administrative process may well be a valid indication that Congress either did not feel that it was providing for an ‘adjudication’ in the traditional sense of the word or did not intend the APA procedures to apply.” Marathon Oil, 564 F.2d at 1263. But when “a statute provides for a hearing, similar weight should not typically be accorded to Congress‘[s] failure to specify that determinations must be made ‘on the record.‘” Id. We conclude that this third requirement is satisfied. Under § 10704(a)(1), the Board is statutorily authorized to “prescribe the maximum rate” “after a full hearing” on the rate‘s reasonableness. Cf. Portland Audubon Soc., 984 F.2d at 1541 (concluding third requirement was satisfied because the Endangered Species Act “requires that the [agency‘s] final decision be ‘based on the report of the Secretary, [the record of] the hearing held under (g)(4) of this section . . . and on such other testimony or evidence as it may receive‘” (quoting
Having determined that the requirements set forth in § 554(a) are satisfied,
“burden of proof“; however, the Supreme Court has interpreted the APA‘s use of “the term ‘burden of proof’ to mean the burden of persuasion.” Dir., Off. of Workers’ Comp. Programs, Dep‘t of Lab. v. Greenwich Collieries, 512 U.S. 267, 276 (1994). “[T]he burden of persuasion [is] the notion that if the evidence is evenly balanced, the party that bears the burden of persuasion must lose.” Id. at 272.
Under FORR, the shipper “bear[s] the burden of proof to demonstrate that (i) the defendant carrier has market dominance over the transportation to which the rate applies, and (ii) the challenged rate is unreasonable.” 88 Fed. Reg. at 302 (citing, in part,
Additionally, under FORR, contrary to the statutory language, it is the parties—not the Board—that “prescribe the maximum rate” pursuant to
We conclude that this procedure falls short of the statutory requirement that “the Board . . . prescribe the maximum rate.”
dissenting). FORR effectively prevents the Board from giving “due consideration” to the statutory factors that the Board is required to consider in assessing a rate‘s reasonableness, see
A hypothetical illustrates this point. Suppose a rail carrier is charging a rate of $100. Applying the statutory factors, the Board concludes that the rate is unreasonable. To make this finding of unreasonableness, the Board necessarily has to determine what the reasonable rate is, applying the Long-Cannon factors and relevant policy considerations. See
By requiring “the Board” to “prescribe the maximum rate,”
not the prisoner of the party‘s submissions, but rather ha[s] the duty to “weigh alternatives and make its choice according to its judgment of how best to achieve and advance the goals of the National Transportation Policy.” In other words, the [Board is] not expected to blandly call balls and strikes; rather, “the right of the public must receive active and affirmative protection at the hands of the Commission.”
III. Conclusion
Accordingly, we hold that the Board lacks statutory authority to prescribe rates through FORR, grant the petitions for review, and vacate the final rule.10
SMITH
CHIEF JUDGE
Notes
When the Board finds in any proceeding that a rail carrier proposing or defending a rate for transportation has market dominance over the transportation to which the rate applies, it may then determine that rate to be unreasonable if it exceeds a reasonable maximum for that transportation. However, a finding of market dominance does not establish a presumption that the proposed rate exceeds a reasonable maximum.
Revenue levels established under this paragraph should—
(A) provide a flow of net income plus depreciation adequate to support prudent capital outlays, assure the repayment of a reasonable level of debt, permit the raising of needed equity capital, and cover the effects of inflation; and
(B) attract and retain capital in amounts adequate to provide a sound transportation system in the United States.
As demonstrated supra, we conclude that § 554—and, as a result, § 556—apply to § 10701‘s “full hearing” requirement. As even the Board acknowledges, it has previously recognized that § 556(d) is the source of burden allocation in assessing maximum reasonable rates. See, e.g., Increased Rates on Coal, Midwestern Railroads, Aug. 1979, 364 I.C.C. 29, 32 n.7 (1980) (“The Iowa utilities have the burden of proving that the rates they advocate are the maximum reasonable rates. See