State of Tex. v. U.S.

• Decision Date: 23 April 1984
• Docket Number: No. 82-1693,82-1693
• Citation: 730 F.2d 339
• Parties: The STATE OF TEXAS, et al., Plaintiffs-Appellants, National Association of Regulatory Utility Commissioners and State Corp. Commission of the State of Kansas, Plaintiffs-Intervenors-Appellants, v. UNITED STATES of America and Interstate Commerce Commission, Defendants-Appellees, and Southern Pacific Transportation Company, et al., Defendants-Intervenors-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 339

730 F.2d 339

The STATE OF TEXAS, et al., Plaintiffs-Appellants National Association of Regulatory Utility Commissioners and State Corp. Commission of the State of Kansas Plaintiffs-Intervenors-Appellants, v. UNITED STATES of America and Interstate Commerce Commission Defendants-Appellees and Southern Pacific Transportation Company, et al., Defendants-Intervenors-Appellees.

No. 82-1693.

United States Court of Appeals, Fifth Circuit.

April 23, 1984.

Wm. Paul Rodgers, Jr., Charles D. Gray, Nat'l Ass'n of Regulatory Utility Com'rs, Washington, D.C., for Nat'l Ass'n of Reg. Utility Comm.

Walter Davis, Asst. Atty. Gen., Austin, Tex., for State of Tex., et al.

Dennis D. Ahlers, Asst. Gen. Counsel, Kansas Corp. Comm., Topeka, Kan., for State Corp. Com'n of Kansas.

Hugh P. Shovlin, Asst. U.S. Atty., San Antonio, Tex., Edward R. Cohen, Appellate Staff, Civ. Div., Dept. of Justice, Washington, D.C., for U.S.A. and I.C.C.

Crady & Peden, Hugh L. McCulley, Houston, Tex., for Southern Pacific Transp. Co.

Michael E. Roper, Dallas, Tex., for Missouri-Kansas-Texas R. Co.

Wilson, Grosenheider & Burns, Robert B. Burns, Jr., Austin, Tex., for The Atchison, Topeka and Santa Fe Ry.

Clark, Thomas, Winters & Shapiro, Donald Scott Thomas, Jr., Austin, Tex., for Missouri Pacific R. Co. and Ass'n of American Railroads.

Steptoe & Johnson, Betty Jo Christian, Stephen Ailes, Washington, D.C., for Ass'n of American Railroads.

Donal L. Turkal, St. Paul, Minn., for Burlington Northern R. Co.

Charles B. Evans, St. Augustine, Fla., William H. Teasley, Washington, D.C., for Florida Railroads.

Neill W. McArthur, Jr., Jacksonville, Fla., Small, Craig & Werkenthin, James M. Alsup, Austin, Tex., for Seaboard Coast Line R.R., et al.

John P. Legendre, Dallas, Tex., for Missouri Pacific R.R.

Appeals from the United States District Court for the Western District of Texas.

Before WISDOM, REAVLEY and JOHNSON, Circuit Judges.

WISDOM, Circuit Judge:

This appeal involves a facial attack on the constitutionality of sections 201, 202, 203, and 214 of the Staggers Rail Act of 1980, ¹ 49 U.S.C.A. Secs. 10501, 10701a, 10707a, 10709, 11501 (1983). Seeking a declaratory judgment that the challenged sections of the Staggers Act are unconstitutional, the State of Texas initiated this case on December 12, 1980, by filing suit against the United States and the Interstate Commerce Commission (ICC). Numerous parties intervened as plaintiffs and defendants. After receiving cross motions for summary judgment and hearing oral argument on those motions, the district court issued an order granting summary judgment to the defendants and the defendant-intervenors, denying summary judgment to the plaintiff and the plaintiff-intervenors, and dismissing the case with prejudice. The plaintiff and two plaintiff-intervenors have appealed that order. We affirm.

I.

The Staggers Act is an attempt to revitalize the nation's railroad system by substantially deregulating rate-setting for interstate rail carriers. In essence, the Act allows interstate rail carriers that operate in competitive markets to establish their own rates. To eliminate regulatory lag and to ensure that the federal goal of deregulation is not thwarted by continued state regulation, the Act displaces the authority of the states independently to regulate the intrastate rates of interstate rail carriers. The appellants argue that these two aspects of the Act--deregulation of rate-setting and displacement of independent state regulation--violate various provisions of the Constitution. A brief review of the previous system of regulation is necessary to understand completely these two aspects of the Act.

In 1973, the bankruptcy of certain major railroads in the northeast and midwest regions of the country threatened the national welfare. Seven of these railroads, including the Penn Central with its huge system, were located principally in the Northeast. Congress responded with an innovative program designed to replace the inefficient, costly, and often duplicative insolvent lines with a new and economically viable rail system, Consolidated Rail Corporation (Conrail). Regional Rail Reorganization Act of 1973, Pub.L. No. 93-236, 87 Stat. 985 (1974) (codified as amended at 45 U.S.C.A. Secs. 701-797m (1983)). Although this legislation offered hope for improvement in the Northeast Corridor, by 1976 Congress recognized the necessity for introducing substantial nationwide changes in the regulation of railroad rates and service conditions. The railroad industry was in serious financial trouble, largely because the industry had become overregulated while competing modes of transportation remained for the most part unregulated. ² Accordingly, Congress inaugurated a policy of deregulating railroad rate-setting by enacting the Railroad Revitalization and Regulatory Reform Act of 1976 (4R Act), Pub.L. No. 94-210, 90 Stat. 31 (codified as amended at 45 U.S.C.A. Secs. 801-855 (1983)). Since the enactment of the Interstate Commerce Act in 1887, the ICC had used the "just and reasonable" standard to review the rates of carriers subject to its jurisdiction. Under the 4R Act, the ICC could not find a railroad rate unjust or unreasonable unless the Commission had first determined that the carrier could exclude effective competition to such an extent that the carrier could be said to have "market dominance". ³ See 4R Act Sec. 202(b), 90 Stat. at 35.

Four years later, Congress found that the railroad industry was still plagued by the same financial problems that faced it in 1976. ⁴ Deregulation of railroad rate-setting under the 4R Act was not proceeding quickly enough. ⁵ Congress enacted the Staggers Rail Act of 1980, making dramatic changes designed to give carriers the freedom to set competitive rates determined mainly by market forces. ⁶ Section 201 of the Act establishes the basic premise of deregulation:

"(a) Except as [otherwise] provided ... a rail carrier providing transportation subject to the jurisdiction of the Interstate Commerce Commission ... may establish any rate for transportation or other service provided by the carrier.

"(b)(1) If the Commission determines, under section 10709 of this title, 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."

49 U.S.C.A. Sec. 10701a(a), (b) (1983). Section 202 of the Act amends the application of the "market dominance" concept so as to free more railroad traffic from rate regulation. See id. Sec. 10709(d). Section 203 creates a permissible zone of rate flexibility, within which rate increases enjoy a qualified immunity from reasonability challenges. Id. Sec. 10707a.

The Staggers Act also institutes a major reallocation of regulatory authority between the federal and state governments. Previously, a dual jurisdictional system of regulation governed rate-setting by interstate rail carriers. The ICC exercised plenary jurisdiction over rail transportation between different states and between the United States and other countries. See 49 U.S.C.A. Sec. 10501(a) (1983). Section 10501(b) of title 49 specifically prohibited ICC jurisdiction over rail transportation "entirely in a State", and primary jurisdiction over intrastate rates and services remained in the individual state regulatory commissions. Section 10501(c) provided that, unless a state requirement conflicted with an order of the ICC or was expressly prohibited by the Interstate Commerce Act, the authority granted the ICC by Congress "does not affect the power of a State, in exercising its police power, to require reasonable intrastate transportation by carriers providing transportation subject to the jurisdiction of the Commission".

In connection with this division of regulatory jurisdiction between the ICC and the states, the ICC exercised a role of limited review over intrastate rate-setting. Codified at 49 U.S.C.A. Sec. 11501 (1983), this reviewing role recognized two circumstances in which the ICC would establish intrastate rates for rail carriers otherwise subject to the Commission's jurisdiction: (1) when the Commission found, after notice and a hearing, that a rate, classification, rule, or practice established by a state regulatory agency caused unreasonable discrimination against or an unreasonable burden on interstate or foreign commerce, id. Sec. 11501(a); ⁷ or (2) when "(A) a rail carrier files with an appropriate State authority a change in an intrastate rate, or a change in a classification, rule, or practice that has the effect of changing an intrastate rate, that adjusts the rate to the rate charged on similar traffic moving in interstate or foreign commerce; and

"(B) the State authority does not act finally on the change by the 120th day after it was filed",

Id. Sec. 11501(d)(1). ⁸ Beyond these two specific instances, states and their regulatory commissions were free to determine intrastate rail policy.

As noted above, the basic purpose of the Staggers Act is to revive the railroad industry by hastening the deregulation of railroad rate-setting. In addressing this purpose, Congress found that the dual federal-state regulatory structure was causing substantial costs to interstate rail carriers. ⁹ Congress found these losses to result partly from a lack of uniform standards and partly from the regulatory delay inherent in the dual system. ¹⁰ The congressional response to this problem was to eliminate independent state regulation of the intrastate rates of interstate rail carriers. To this end, section 214 of the Staggers Act radically revises the regulatory structure governing intrastate rail rates and services.

Section 214 preempts outright all state jurisdiction over general rate increases, ¹¹ inflation-based rate increases, and fuel adjustment surcharges. ¹² 49 U.S.C.A. Sec. 11501(b)(6) (1983). If a state wishes to continue regulating other...