General Chemical Corp. v. U.S.

• Decision Date: 01 May 1987
• Docket Number: No. 85-1347,85-1347
• Citation: 817 F.2d 844
• Parties: GENERAL CHEMICAL CORPORATION, et al., Petitioners, v. UNITED STATES of America and Interstate Commerce Commission, Respondents, Atchison, Topeka and Santa Fe Railway Company, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 844

817 F.2d 844

260 U.S.App.D.C. 121

GENERAL CHEMICAL CORPORATION, et al., Petitioners, v. UNITED STATES of America and Interstate Commerce Commission,

Respondents,

Atchison, Topeka and Santa Fe Railway Company, et al., Intervenors.

No. 85-1347.

United States Court of Appeals, District of Columbia Circuit.

Argued April 22, 1986.

Decided May 1, 1987.

Evelyn G. Kitay, I.C.C., with whom Robert S. Burk, Gen. Counsel, and Ellen D. Hanson, Associate Gen. Counsel, I.C.C., Douglas H. Ginsburg, Asst. Atty. Gen. at the time the brief was filed, and John J. Powers, III and George Edelstein, Dept. of Justice, Washington, D.C., were on the brief, for respondents.

Robert B. Batchelder, Omaha, Neb., with whom John M. Edsall, James V. Dolan, Washington, D.C., Louise A. Rinn, Omaha, Neb., John A. Daily, Philadelphia, Pa., John C. Danielson, Detroit, Mich., John Doeringer, Chicago, Ill., Albert Laisy, Baltimore, Md., William L. Phillips, Chicago, Ill., Michael E. Roper, Dallas, Tex., Alice C. Saylor, Pittsburgh, Pa., William H. Teasley, Atlanta, Ga., Stuart E. Vaughn, and Dennis W. Wilson, Chicago, Ill., were on the joint brief, for intervenors.

John K. Maser, III, Washington, D.C., with whom Michael M. Briley, Toledo, Ohio, John F. Donelan, and Richard D. Fortin, Washington, D.C., were on the brief, for petitioners.

Nicholas J. diMichael, Washington, D.C., entered an appearance for petitioners.

Before SCALIA ^* and SILBERMAN, Circuit Judges, and WRIGHT, Senior Circuit Judge.

Opinion for the court Per Curiam.

PER CURIAM:

Petitioners, producers and receivers of soda ash, challenge the reasonableness of rates assessed by the intervenor railroads for transportation of soda ash produced in Green River, Wyoming. The Interstate Commerce Commission (ICC) decided that the railroads were not "market dominant" as the Railroad Revitalization and Regulatory Reform Act ("4-R" Act) requires for the Commission to have jurisdiction to consider the reasonableness of rail rates. The Commission accordingly dismissed petitioners' complaint. It is the ICC's conclusion about market dominance that is at issue in this case. The Commission based its conclusion of no market dominance on the existence of effective geographic competition in the relevant soda ash market. We find the Commission's analysis of geographic competition to be internally inconsistent and inadequately explained, and thus we conclude that its ultimate finding of no market dominance was arbitrary and capricious and not supported by substantial evidence on the record considered as a whole. Although the Commission's analyses of product and intra- and intermodal competition were not similarly flawed, the Commission was careful not to rest its holding on these sources of competition. They therefore cannot themselves support the conclusion of no market dominance. Hence, the Commission's decision on the issue of market dominance must be vacated and the case remanded to the agency for reconsideration.

I. FACTUAL AND PROCEDURAL BACKGROUND

Soda ash or sodium carbonate is the ninth most widely used chemical in the United States. It is an essential raw material in several industries, particularly the manufacture of glass. There are three methods of producing soda ash. The first is by mining trona ore. This is the method used by the petitioner producers in this case, and it accounts for 80 percent of total United States production capacity. The world's largest deposit of trona ore is located in Green River, Wyoming. The second method of producing soda ash is by distilling spring or lake brine. This method of production is used by facilities located at Searles Lake, California, and it accounted for approximately 11 percent of domestic production capacity in 1982. The third method of producing soda ash is by synthetic production. Although this was at one time the most popular method of producing soda ash, use of synthetic plants has decreased markedly in recent years because of more stringent environmental regulation and increasing energy costs. Synthetic production accounted for only 6.6 percent of total United States production capacity in 1982.

Green River soda ash, the subject of petitioners' challenge, is moved from Wyoming almost exclusively by rail. There is only one originating railroad--Union Pacific--with an average length of haul of over 900 miles. The intervenor railroads' share of total Green River soda ash shipments exceeds 95 percent. The gist of petitioners' complaint is that they are captives of the railroads. Because they have no realistic alternative for transportation of soda ash, they argue, they are forced to pay whatever the railroads choose to charge. Essentially the Green River producers claim that they are surrendering their profits from garnering 80 percent of the national soda ash market to the railroads, who have gained 95 percent of the market for transportation of Green River soda ash.

The 19 petitioners (4 producers of soda ash and 15 receivers) allege in a complaint filed in March 1981 that the rates assessed by the intervenor railroads on Green River soda ash over 238 specified routings to 157 destinations are unreasonably high in violation of the Interstate Commerce Act. ¹ They seek both prescription of reasonable rates for the future and reparations for past shipments. Forty-nine intervenors (39 railroads and 10 belt or terminal operators) contest this allegation.

The complaint was adjudicated in a bifurcated procedure. Before it can reach the second stage of assessing the reasonableness of rail rates, the ICC must clear two preliminary jurisdictional hurdles. First it must determine that the challenged rates exceed a specified revenue/variable cost ratio, set on a graduated scale chronologically. See 49 U.S.C. Sec. 10709(d)(2) (1982). Second, it must find that the railroads have "market dominance," defined as "the absence of effective competition from other carriers or modes of transportation, for the traffic or movement to which a rate applies." 49 U.S.C. Sec. 10709(a) (1982). Therefore the Administrative Law Judge (ALJ) assigned to the instant case made two separate decisions: in Phase I he decided that the railroads did have market dominance over those movements for which the rates exceeded the revenue/variable cost threshold, but in Phase II he concluded that they nonetheless were not charging unreasonable rates.

This separation of market dominance determinations from assessments of rate reasonableness reflects Congress' conscious rejection of perfect competition as the governing norm in railroad regulation. Rail regulation under the 4-R Act does not require regulation of rates merely because of market imperfection. See H.R.Conf.Rep. No. 781, 94th Cong., 2d Sess. 148 (1976). Rather, the bifurcated procedure permits the conclusion that effective competition is lacking and therefore the railroads have market dominance, but that the rates assessed by the railroads are nonetheless "reasonable." See H.R.Conf.Rep. No. 768, 94th Cong., 1st Sess. 121 (1975). The isolation of the market dominance inquiry thus is central to Congress' plan of structured deregulation in the rail industry.

In deciding whether the railroads have market dominance, the ALJ applied the guidelines promulgated by the ICC in 1981. See Ex Parte No. 320 (Sub-No. 2), Market Dominance Determinations and Consideration of Product Competition, 365 ICC 118 (1981), aff'd sub nom. Western Coal Traffic League v. United States, 719 F.2d 772 (5th Cir.1983) (en banc ), cert. denied, 466 U.S. 953, 104 S.Ct. 2160, 80 L.Ed.2d 545 (1984). Prior to 1981, market dominance determinations were conducted according to rebuttable presumptions based on market share, rail-related investment, and revenue/variable cost ratios. See 49 C.F.R. Sec. 1109.1; P. DEMPSEY & W. THOMS, LAW AND ECONOMIC REGULATION IN TRANSPORTATION 165 & n. 50 (1986). The 1981 guidelines replaced these "on/off" quantitative presumptions with qualitative guidelines that are, in the ICC's words, "broader and more flexible." Market Dominance Determinations, 365 ICC at 119. These guidelines call for the agency to assess the existence of four types of competition: geographic, product, intramodal, and intermodal. Geographic competition is "a restraint on rail pricing stemming from a shipper's or receiver's ability to get the product to which the rate applies from another source, or ship it to another destination." 365 ICC at 128. Product competition exists "when a receiver or shipper can use a substitute(s) for the product covered by the rail rate." Id. Intramodal competition is "competition between two or more railroads transporting the same commodity between the same origin and destination," whereas intermodal competition is "competition between rail carriers and other modes for the transportation of a particular product between the same origin and destination." Id. at 132-33. The railroads bear the burden of identifying where product or geographic competition exists. Once the railroad has made this identification, the shipper in turn has the burden of proving that the product or geographic competition identified by the railroad is not effective. ²

In his Phase I decision the ALJ first considered the revenue/variable cost jurisdictional threshold and found that all but eight destinations had revenue/variable cost ratios above the then-current statutory threshold of 160 percent. To arrive at this conclusion the ALJ apparently accepted petitioners' evidence regarding cost. See Phase I Decision at 5. The ALJ then moved to consideration of qualitative evidence of market dominance and concluded that the railroads were market dominant. He first determined that the geographic competition alleged by the railroads was not effective and had not affected the railroad rates from the Green River origins. Id. at 8. He similarly found that the record as a whole did not support a finding that there is effective product or inter- or...