Dhx, Inc. v. Surface Transportation Board

• Citation: 501 F.3d 1080
• Decision Date: 30 August 2007
• Docket Number: No. 05-74592.,05-74592.
• Parties: DHX, INC., Petitioner, v. SURFACE TRANSPORTATION BOARD; United States of America, Respondents, Matson Navigation Company, Inc.; Horizon Lines, Respondent-Intervenor.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

501 F.3d 1080

DHX, INC., Petitioner, v. SURFACE TRANSPORTATION BOARD; United States of America, Respondents Matson Navigation Company, Inc.; Horizon Lines, Respondent-Intervenor.

No. 05-74592.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 4, 2007.

Filed August 30, 2007.

Rick A. Rude (argued and on the brief), Falls Church, VA, and David E.R. Woolley (on the brief), Los Angeles, CA, for petitioner DHX, Inc.

Craig M. Keats, Deputy General Counsel, Surface Transportation Board, Washington, D.C., (argued and on the brief); Ellen D. Hanson, General Counsel, Surface Transportation Board, Jamie P. Rennert, Attorney, Surface Transportation Board, Thomas O. Barnett, Acting Assistant Attorney General, Department of Justice, Gerald F. Masoudi, Deputy Assistant Attorney General, Department of Justice, John J. Powers, II, Attorney, Department of Justice and Robert J. Wiggers, Attorney, Department of Justice, Washington, D.C., (on the brief) for respondents Surface Transportation Board and United States of America.

C. Jonathan Benner and Leonard L. Fleisig, Troutman Sanders LLP, Washington, D.C., (argued and on the brief); Christine J. Sommer, Troutman Sanders LLP, Washington, D.C., (on the brief) for intervenor-respondent Horizon Lines, LLC. Richard A. Allen and Scott M. Zimmerman, Zuckert, Scoutt & Rasenberger, LLP, Washington, D.C., (on the brief) for intervenor-respondent Matson Navigation Co., Inc.

On Petition for Review of an Order of the Surface Transportation Board. STB No. WCC-105.

Before: SIDNEY R. THOMAS, RAYMOND C. FISHER, and RONALD M. GOULD, Circuit Judges.

GOULD, Circuit Judge:

DHX, Inc., a freight forwarder, petitions for review of a decision by the Surface Transportation Board ("STB") denying its complaint challenging the reasonableness of certain rates and practices of Matson Navigation Co., Inc. ("Matson"), and Sea-Land Service, Inc., now Horizon Lines, LLC ("Horizon"), two water carriers operating in the noncontiguous domestic trade between Hawaii and ports in the continental United States. We have jurisdiction pursuant to 28 U.S.C. §§ 2321 and 2342(5), and we deny the petition for review.

I. A

The STB is a successor to the Interstate Commerce Commission ("ICC"). In the ICC Termination Act of 1995 ("ICCTA"), Pub.L. No. 104-88, 109 Stat. 803, Congress abolished the ICC, revised the Interstate Commerce Act, and transferred regulatory functions under that Act to the STB. See Redmond-Issaquah R.R. Pres. Ass'n v. STB, 223 F.3d 1057, 1059 n. 1 (9th Cir. 2000). In 1976, Congress began partially deregulating the industries that the ICC supervised, with a view toward promoting competition. See H.R.Rep. No. 104-311, at 90-93 (1995), as reprinted in 1995 U.S.C.C.A.N. 793, 802-05 ("ICCTA House Report"); S.Rep. No. 104-176, at 2-4 (1995) ("ICCTA Senate Report"). The ICCTA continued this general deregulatory trend and "significantly reduce[d] regulation of surface transportation industries in this country." ICCTA Senate Report at 2.

Prior to the enactment of the ICCTA, the ICC had regulatory authority over water carriers who operated along the coasts of the continental United States or on inland waterways. Water carriers who operated outside of the continental United States, however, were regulated by the Federal Maritime Commission. The Federal Maritime Commission had regulatory authority over all "port-to-port" operations of carriers serving the "noncontiguous domestic trade" (or the "domestic offshore" trade), i.e. operations between ports in Alaska, Hawaii, or United States territories or possessions on the one hand, and other United States ports, including mainland ports, on the other hand. The ICCTA centralized all regulatory authority relating to the noncontiguous domestic trade with the STB. See 49 U.S.C. § 13521.

In doing so, Congress reenacted some, but not all, of the pre-ICCTA regulatory provisions regarding the noncontiguous domestic trade. In keeping with its trend toward reducing unnecessary regulation, Congress removed some of the regulatory restraints previously imposed upon water carriers. Moreover, Congress affirmatively authorized the water carriers to undertake some market-driven activities that motor and rail carriers had already been allowed to pursue after the enactment of earlier legislation. Thus, under the ICCTA, water carriers in the noncontiguous domestic trade remain subject to three main regulatory requirements: (1) like all common carriers, they must "provide [ ] transportation or service on reasonable request," see 49 U.S.C. § 14101(a); (2) they are required to file tariffs, see 49 U.S.C. § 13702(a) and (b); and (3) they are required to maintain "reasonable" rates and practices, see 49 U.S.C. § 13701(a).

Despite these regulatory requirements, the ICCTA also codifies a number of rate freedoms. 49 U.S.C. § 13701(d) is a safe harbor provision, which specifies that any given rate is deemed reasonable if it falls within a "zone of reasonableness," i.e. if it is not more than 7.5% higher or 10% lower than what the rate was one year earlier. The ICCTA allows carriers explicitly to offer rates that vary with the volume of cargo offered over a specified period of time, see 49 U.S.C. § 13702(b)(4), and it allows carriers to enter into contracts in which the parties can waive any or all of the rights or remedies available under the Interstate Commerce Act, see 49 U.S.C. § 14101(b). Most importantly, with regard to DHX's petition for review, Congress repealed the statutory provisions that had prohibited unreasonable discrimination in the noncontiguous domestic water carrier trade when it enacted the ICCTA. See 46 U.S.C. app. § 815 (repealed 1995).

I. B

While some shipments via water carrier are arranged between the carrier and the shipper directly, others are handled through a third-party intermediary such as a freight forwarder. DHX is a freight forwarder, an entity that holds itself out to the general public to provide transportation of property for compensation, usually by assembling and consolidating shipments to take advantage of volume rates offered by the carrier actually hauling the goods. See 49 U.S.C. § 13102(8). A freight forwarder "maintains the dual status of both carrier (vis-à-vis its shippers) and shipper (vis-à-vis the underlying carrier that it uses)." Exem. of Freight Forwarders From Tariff Filing Requir., 2 S.T.B. 48, 50 (1997). Therefore, DHX is both a user and a competitor of water carriers such as Matson and Horizon to which it tenders traffic.

In the water trade, freight forwarders aggregate smaller shipments at the point of origin, buy space on a vessel, and then provide distribution services at the destination. Freight forwarders earn a profit when the rates they charge to individual shippers are lower than the water carrier's rates for small shipments, but higher than the water carrier's rates for the consolidated containerloads that the forwarders assemble. See Chi., Milwaukee, St. Paul & Pac. R.R. v. Acme Fast Freight, Inc., 336 U.S. 465, 467, 69 S.Ct. 692, 93 L.Ed. 817 (1949); N.Y. Foreign Freight Forwarders & Brokers Ass'n v. ICC, 589 F.2d 696, 699-700 (D.C.Cir.1979). The use of a freight forwarder can benefit the shipper by allowing it to pay rates lower than it could obtain on its own for shipments in small lots, while also benefitting the carrier, who is then free to focus its business on the high-volume containerload traffic that is most efficient for it to handle while the freight forwarder consolidates smaller shipments.

The dispute underlying this appeal is between freight forwarder DHX and the two major water carriers currently serving the Hawaiian water trade market, Matson and Horizon. The noncontiguous domestic trade between Hawaii and the mainland is experiencing a relatively low volume of traffic, resulting in excess capacity, which in turn, has exerted downward pressure on rates. See generally U.S. Dep't of Transp., A Report to Congress: Competition in the Noncontiguous Domestic Maritime Trades, at III-8-14 (1997) ("DOT Report").¹ This downward pressure led to rates in 1995 that were substantially below the inflation-adjusted rate levels in 1985. See id. To address these market constraints and to maximize profitable traffic, Matson and Horizon tailored their rates to attract profitable traffic away from freight forwarders as well as to draw traffic away from each other. To attract and keep larger shippers like Home Depot that can provide a steady flow of full containerload ("FCL") traffic, the water carriers began offering volume rates with "overflow provisions."

Overflow occurs when a particular shipper's traffic for a given shipment does not completely fill all the containers used for that shipment. For example, Home Depot's traffic for a particular shipment might fill more than one full container, but less than two. When such overflow occurs, the water carriers charge Home Depot a rate on the second, partially-filled container that is lower than the rate that would apply to a partially-filled container that is not part of a larger shipment by using their overflow provisions. According to the carriers, the purpose of overflow provisions is "to accommodate the needs of those regular, high-volume shippers," who are the water carriers' best customers.

As the STB explained in its June 2005 decision, once DHX recognized that lower rates were being charged for partially filled containers that were part of a larger shipment under Matson and Horizon's overflow provisions, DHX "began to go beyond the traditional role of a freight forwarder . . . and to instead target the water carriers' larger customers that already tendered volume traffic to the carriers[directly]." Specifically, DHX would take the same containerload traffic of large shippers such as Home Depot, unpack the full containers, redistribute their contents, and repack them in order to create more overflow containers than the shippers themselves...