CSX Transp. v. U.S., 87-1646

• Decision Date: 17 February 1989
• Docket Number: No. 87-1646,87-1646
• Citation: 867 F.2d 1439
• Parties: , 57 USLW 2503 CSX TRANSPORTATION, Petitioner, v. UNITED STATES of America and Interstate Commerce Commission, Respondents, Potomac Electric Power Company, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1439

867 F.2d 1439

276 U.S.App.D.C. 96, 57 USLW 2503

CSX TRANSPORTATION, Petitioner, v. UNITED STATES of America and Interstate Commerce Commission Respondents Potomac Electric Power Company, Intervenor.

No. 87-1646.

United States Court of Appeals, District of Columbia Circuit.

Argued Sept. 19, 1988.

Decided Feb. 17, 1989.

As Amended Feb. 17, 1989.

G. Paul Moates, with whom Richard E. Young, Washington, D.C., and Charles C. Rettberg, Jr., Cleveland, Ohio, were on the brief, for petitioner.

Thomas J. Stilling, Atty., I.C.C., with whom Ellen D. Hanson, Associate Gen. Counsel, I.C.C., and John J. Powers III, and John P. Fonte, Attys., Dept. of Justice, Washington, D.C., were on the brief, for respondents.

C. Michael Loftus, John H. LeSeur, and Frank J. Pergolizzi were on the brief for intervenor. William T. Torgerson, Washington, D.C., also entered an appearance for intervenor.

Before EDWARDS, BUCKLEY, and SENTELLE, Circuit Judges.

Opinion for the court filed by Circuit Judge BUCKLEY.

Dissenting opinion filed by Circuit Judge HARRY T. EDWARDS.

BUCKLEY, Circuit Judge:

CSX Transportation seeks review of an Interstate Commerce Commission decision ordering it to refund to Potomac Electric Power Company all amounts attributable to a 1981 rate increase taken by the petitioner pursuant to a section added to the Interstate Commerce Act by the Staggers Rail Act of 1980. That section permits a rail carrier, within limits, to increase unilaterally "any rate over which the Commission has jurisdiction." The ICC held, however, that the profit-enhancing increase permitted under the Staggers Act did not apply to a rate previously prescribed by the Commission as the carrier's maximum reasonable rate. Because a prescribed rate is beyond question a rate within the Commission's jurisdiction, we conclude that Congress intended the rate increase authorized by the Staggers Act to apply to previously prescribed rates. Accordingly, we reverse.

I. BACKGROUND

A. Statutory Background

The Interstate Commerce Act ("Act"), 49 U.S.C. Secs. 10701 et seq. (1982), was originally enacted to protect the public against the abuse of monopoly power at a time when railroads dominated interstate transportation in the United States. To this end, it granted the Interstate Commerce Commission ("ICC" or "Commission") discretionary power to investigate the reasonableness of rates proposed by rail carriers. Id. Secs. 10707 and 11701(a). The Act also permitted a shipper to file a complaint challenging a proposed rate. Id. Sec. 11701(b). When it found a carrier's rate to be unreasonable, the Commission had the authority to order the carrier to pay the shipper damages for overcharges. Id. Sec. 11705(b)(2) and (c). The ICC was also authorized to prescribe a maximum future rate, in which case "the affected carrier may not publish, charge, or collect a different rate." Id. Sec. 10704(a)(1).

In 1980, Congress enacted the Staggers Rail Act of 1980, Pub.L. No. 96-448, 94 Stat. 1895 ("Staggers Act"), which was designed to eliminate unnecessary or inefficient rate regulation, 94 Stat. at 1896, and to bolster the financial stability of the railroads, id. at 1897. The Staggers Act did so, in part, by adding a new section to the ICA, 49 U.S.C. Sec. 10707a, that permitted carriers to put certain rate increases into effect without prior Commission approval.

Section 10707a authorizes carriers to initiate two types of rate increases. First, carriers may raise their rates to meet rising costs, with the amount of the increase to be determined by reference to an industry-wide "rail cost adjustment factor" ("RCAF"). Id. Sec. 10707a(a) and (b). Second, to enhance its profits, a carrier may "increase any rate over which the Commission has jurisdiction" within a statutorily specified "zone of rate flexibility" ("ZORF"). Id. Sec. 10707a(c)(1) and (d)(1). The resulting rates may not exceed the "adjusted base rate" (i.e., base rate multiplied by RCAF, id. Sec. 10707a(a)(2)(A)) plus any increase allowed under either section 10707a(c)(1) (up to six percent per year from 1980 through 1984) or section 10707a(d) (up to four percent per year after 1984).

In this case, we must resolve a statutory conflict between section 10704(a)(1), which prohibits a rail carrier from increasing an ICC-prescribed maximum rate, and the more recently adopted section 10707a(c), which allows a carrier to take a ZORF increase on "any rate" without prior regulatory clearance.

B. ICC Proceedings

In Potomac Electric Power Co. ("PEPCO") v. Penn Central Transp. Co., 356 I.C.C. 815 (1977), the ICC ruled that the predecessors-in-interest of petitioner CSX Transportation ("CSXT") were charging unreasonable rates for transporting trainloads of coal to intervenor PEPCO's generating station in Dickerson, Maryland. Subsequently, the ICC prescribed a maximum reasonable rate of $3.87 per ton. PEPCO v. Penn Central, 359 I.C.C. 222, 240 (1977). On a petition for reopening, the ICC affirmed the rate prescription, PEPCO v. Penn Central, 358 I.C.C. 473 (1978), which was upheld in B & O R.R. Co. v. United States, 594 F.2d 856 (4th Cir.) (unpublished decision issued Apr. 2, 1979).

On September 15, 1981, CSXT took a three percent ZORF profit-enhancing increase, which PEPCO has contested in two separate administrative proceedings. In the challenge at issue here, PEPCO argued that as the ICC's 1977 prescription order established the carrier's maximum permissible profit level, CSXT had violated section 10704(a)(1) by unilaterally increasing its rate. CSXT maintained that section 10707a(c) authorized shippers to take ZORF increases in prescribed rates without the Commission's prior approval.

The ICC issued its decision on October 19, 1987. Potomac Electric Power Co. v. Consolidated Rail Corp., Nos. 36114 and 36114 (Sub No. 1) (unpublished) ("ICC Decision"). At the outset of its discussion, the Commission conceded that in two earlier decisions it had indirectly indicated that CSXT could take increases on prescribed rates. Nevertheless, while it acknowledged the "apparent conflict" between sections 10707a and 10704(a)(1), the Commission offered an interpretation "which can harmonize both language and intent," thereby avoiding a finding of "irreconcilable conflict" that would dictate a holding that the newer provision (Sec. 10707a) partially repealed the older one (Sec. 10704(a)(1)).

In the Commission's view, section 10704(a)(1)'s maximum rate prescription was intended to allow carriers to cover costs and to earn a reasonable return, but to prevent them from extracting unreasonable profits. Thus, any attempted increase above the prescribed maximum rate was presumptively unreasonable, and allowing a carrier to take such an increase by invoking section 10707a would force a shipper to relitigate a rate case that the shipper had already won. Turning to the Staggers Act, the Commission explained that section 10707a promoted two distinct goals: to facilitate cost recovery in a period of high inflation, and to permit the wider profit margins that Congress believed to be required in order to restore the nation's railroads to economic health. To accomplish the first goal, Congress provided carriers with an automatic right to recover increased costs as determined by the RCAF. The Commission asserted, however, that the ZORF provisions were more complex because they were designed both "to permit competitive profit taking" and "to prevent monopolistic gain." ICC Decision at 4-5.

Having discussed Congress' multiple purposes, the ICC concluded that under section 10707a, cost recovery increases could be taken on all rates (prescribed or nonprescribed), but ZORF increases "may not lawfully be applied to prescribed rates absent Commission approval" because in those instances the Commission had already established maximum profit levels. Id. at 6. The ICC reasoned that such a reading was required in order to accommodate section 10704(a)(1)'s provision prohibiting carriers from charging a different rate. The Commission also justified its result on two other grounds. First, because ICC-prescribed rates constitute a tiny percentage of all rates, the Commission's interpretation would have little effect on the goal of rate flexibility. Second, it would ensure that carriers could not use ZORF increases to extract unreasonably high rates from shippers. Id.

The ICC ultimately ruled that PEPCO was entitled to a refund, with interest, of all amounts attributable to CSXT's 1981 ZORF increase during the applicable statute of limitations period. CSXT has petitioned this court for review under 28 U.S.C. Secs. 2321(a) and 2342(5).

II. DISCUSSION

A. Standard of Review

In Chevron USA, Inc. v. NRDC, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), the Supreme Court established a two-step analysis to guide judicial review of an agency's construction of its governing statute:

First ... is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court ... must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute.... [Rather, it determines] whether the agency's answer is based on a permissible construction of the statute.

Id. at 842-43, 104 S.Ct. at 2781-82. To make the threshold determination of whether the statute is clear and to ascertain its plain meaning, "the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole." K Mart Corp. v. Cartier, Inc., --- U.S. ----, 108 S.Ct. 1811, 1817, 100 L.Ed.2d 313 (1988).

Petitioner argues that only Chevron's first prong is applicable because the statute's ZORF provisions clearly indicate that Congress intended to allow a rail carrier to increase "any...