568 F.3d 236 (D.C. Cir. 2009), 07-1369, CSX Transp., Inc. v. Surface Transp. Bd.
| Citation | 568 F.3d 236 |
| Opinion Judge | TATEL, Circuit Judge: |
| Party Name | CSX TRANSPORTATION, INC., et al., Petitioners v. SURFACE TRANSPORTATION BOARD and United States of America, Respondents American Chemistry Council, et al., Intervenors. |
| Attorney | G. Paul Moates argued the cause for Railroad Petitioners. With him on the briefs were Paul A. Hemmersbaugh, Peter J. Shudtz, Paul R. Hitchcock, Louis P. Warchot, George A. Aspatore, J. Michael Hemmer, Louise A. Rinn, Samuel M. Sipe, Jr., Anthony J. LaRocca, Terence M. Hynes, and Michael L. Rosent... |
| Judge Panel | Before: ROGERS, TATEL, and GRIFFITH, Circuit Judges. |
| Case Date | June 09, 2009 |
| Court | United States Courts of Appeals, U.S. Court of Appeals — District of Columbia Circuit |
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Argued April 7, 2009.
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OPINION
In this case we consider a set of challenges to a Surface Transportation Board regulation establishing a simplified method for resolving rail rate disputes too small to bring under ordinary procedures. The Board's new regulation gives shippers-the complainants in rail rate disputes-a choice between using the usual procedures or either of two cheaper and simpler " small claims" alternatives better suited to uncomplicated cases. Under each alternative, relief is capped due to the method's lower accuracy. A group of railroads challenges the Board's adoption of one of the alternative methods, and a group of shippers challenges the other, as well as the relief caps on both. Finding the Board's balancing of the competing interests in accuracy and simplicity well within its statutory authority and neither arbitrary nor capricious, we deny the petitions for review in all respects.
I.
The Surface Transportation Board regulates the rates railroads charge shippers over which they have market dominance. 49 U.S.C. § § 10501, 10701(d)(1). Because such captive shippers are unable to fend for themselves in the market, Congress allows them to challenge a rail rate as unjust or unreasonable before the Board, id. § 10707(b)-(c), which can impose retrospective relief in the form of reparations, id. § 11704(b), and prospective relief by prescribing a new rate, id. § 10704(a)(1). To understand this case, a brief whistle-stop tour through the history of the Board's procedures for resolving these rate disputes is in order. All aboard!
In 1985, the Interstate Commerce Commission, the Board's predecessor, decided to resolve rate disputes under " constrained market pricing" (CMP) principles, under which the Commission would find reasonable a rate that (1) reflects the amount a captive shipper would have to pay to receive efficient service, (2) affords the railroad adequate revenues, and (3) does so without cross-subsidizing any service or facility from which the shipper receives no benefit. Coal Rate Guidelines, Nationwide, 1 I.C.C.2d 520, 523-24 (1985), aff'd sub nom. Consol. Rail Corp. v. United States, 812 F.2d 1444 (3d Cir.1987). Under these principles, shippers able to demonstrate that the railroad has market dominance had the choice of one of several methods to prove that the challenged rates were unreasonable. They could opt to examine the railroad's entire network for revenue adequacy or management efficiency, or alternatively, they could choose to examine only a subset of the network using the " stand-alone cost" (SAC) test-the choice of most shippers.
A SAC presentation simulates a " stand-alone railroad," a fully efficient hypothetical competitor railroad that serves the complaining shipper and other traffic sharing common facilities. BNSF Ry. Co. v. STB (" BNSF I " ), 453 F.3d 473, 477 (D.C.Cir.2006). A challenged rail rate is unreasonable to the extent it exceeds the
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costs (including a reasonable profit) of running the stand-alone railroad. Id. A SAC presentation thus furthers CMP principles by promoting efficiency and eliminating cross-subsidization. It accomplishes the former by forcing the railroad to bear the cost of any inefficiencies, and the latter by preventing the shipper from paying for any facilities from which it receives no benefit. Due largely to the difficulty of modeling an efficient stand-alone railroad, however, this process is both expensive and time-consuming-each " full SAC" case can cost a shipper up to $5 million to litigate. Simplified Standards for Rail Rate Cases (" Decision " ), STB Ex Parte No. 646 (Sub-No. 1), at 31 (served Sept. 5, 2007). In fact, coal companies are virtually the only shippers who deliver sufficiently large loads along fixed routes to justify using full SAC procedures. See Rate Guidelines-Non-Coal Proceedings (" 1996 Guidelines " ), 1 S.T.B. 1004, 1008 n. 7 (1996) (noting " prevalence" of coal rate challenges).
Recognizing the expense of full SAC cases, the Commission soon began searching for a simplified alternative. Throughout the 1980s and early 1990s, it considered but ultimately discarded several alternatives. One proposal, intended to create a simplified SAC procedure, came in the form of a computerized model from the Association of American Railroads (AAR). Because the AAR refused to provide the proprietary source code for its computer program (known as AAR-SSAC), the Commission ran sample cases through the program to test it. AAR-SSAC's days were numbered when it labeled reasonable a rate set at 5000 percent of the railroad's variable costs.
By 1995, when Congress replaced the Commission with the Board, the Commission still had not settled on a simplified alternative. As a result, when Congress passed the ICC Termination Act of 1995, it gave the newly-created Board a year to " establish a simplified and expedited method for determining the reasonableness of challenged rail rates in those cases in which a full stand-alone cost presentation is too costly, given the value of the case." Pub.L. No. 104-88, § 102(a), 109 Stat. 803, 810 (1995) (codified as amended at § 10701(d)(3)). Responding to this directive, the Board issued a set of simplified guidelines, which rejected AAR-SSAC and introduced a " three benchmark" system, 1996 Guidelines, 1 S.T.B. at 1041, whereby the reasonableness of a challenged rate was assessed not by simulating any alternative railroad, but simply-at least as " the starting point for a rate reasonableness analysis" -by comparing it to similar existing rates, id. at 1022. When this approach went unused for years, the Board held hearings to find out why. During those proceedings, shippers testified that the three benchmark guidelines were too vague and that the question of whether a case was even eligible for resolution under the three benchmark system was so uncertain as to require litigation. Simplified Standards for Rail Rate Cases (" NPRM " ), STB Ex Parte No. 646 (Sub-No. 1), at 3 (served July 28, 2006) (notice of proposed rulemaking).
In 2006, the Board issued a notice of proposed rulemaking, proposing (1) the retention of a slightly modified three benchmark system for the smallest cases, (2) the creation of a simplified SAC procedure more complicated than the three benchmark system but simpler than full SAC, for use in medium-size cases, and (3) clear eligibility thresholds for each procedure. Id. After reviewing comments submitted by railroads and shippers, the Board in 2007 issued its final rule-the rule challenged here-which gave the shippers the choice of a modified three benchmark system intended for the smallest cases, a new
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simplified SAC procedure intended for medium-size cases, or full SAC. Decision at 5-6. Absent from the final rule are the eligibility thresholds and with them the prospect of litigation over which method to use. Instead, the new rule allows each shipper to elect the three benchmark method, simplified SAC, or full SAC for any case. To channel larger cases to the more accurate methods, the rule limits the relief available to $1 million over five years for a three benchmark case and $5 million over five years for a simplified SAC case. Id. at 5; see also id. at 27-28. This limit applies to whatever combination of retrospective and prospective relief the Board imposes. Id. at 28.
The three benchmark system compares the challenged rate to three benchmark figures, each expressed as a relationship between revenues and variable costs, id. at 10, i.e., " those costs that increase as traffic over the railroad increases," BNSF Ry. Co. v. STB (" BNSF II " ), 526 F.3d 770, 773 (D.C.Cir.2008). Calculating one of these benchmarks involves comparing the rail movement at issue with a group of similar movements. The Board selects a comparison group from groups proposed by the parties, who choose the comparison movements from the four most recent years of data in the " Waybill Sample." Decision at 18. That sample, compiled by the Board, is a survey of information from rail movements across the nation. Id. at 78.
The Board's simplified SAC procedure is similar to the full SAC method, but with a crucial difference. In a full SAC presentation, the stand-alone...
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