Southern Pacific Transp. Co. v. I.C.C., Nos. 92-1583

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Writing for the CourtSILBERMAN; ROGERS
Citation69 F.3d 583
Decision Date25 January 1996
Docket NumberNos. 92-1583,94-1651
Parties, 64 USLW 2305 SOUTHERN PACIFIC TRANSPORTATION COMPANY, et al. v. INTERSTATE COMMERCE COMMISSION, and the United States of America, Respondents Consolidated Rail Corporation, et al., Intervenors. District of Columbia Circuit

Page 583

69 F.3d 583
314 U.S.App.D.C. 419, 64 USLW 2305
SOUTHERN PACIFIC TRANSPORTATION COMPANY, et al.
v.
INTERSTATE COMMERCE COMMISSION, and the United States of
America, Respondents
Consolidated Rail Corporation, et al., Intervenors.
Nos. 92-1583, 94-1651.
United States Court of Appeals,
District of Columbia Circuit.
Argued Sept. 5, 1995.
Decided Nov. 7, 1995.
Rehearing and Suggestion for Rehearing In Banc Denied Jan.
25, 1996. *

Page 584

On Petitions for Review of Orders of the Interstate Commerce Commission.

John G. Roberts, Jr., argued the cause for Southern Pacific Transportation Company, et al. With him on the briefs were George W. Mayo, Jr., David G. Leitch, Louis P. Warchot, II, and Carol A. Harris. Entering appearances were John M. Smith and Fritz R. Kahn for Southern Pacific Transportation Company.

Louis Mackall, V, Attorney, Interstate Commerce Commission, argued the cause for respondents. With him on the brief were Henri F. Rush, General Counsel, and Craig M. Keats, Associate General Counsel, Interstate Commerce Commission, and John J. Powers, III and John P. Fonte, Attorneys, United States Department of Justice.

Paul A. Cunningham, argued the cause for intervenors Consolidated Rail Corporation, et al., in support of respondents. With him on the brief were David A. Hirsh, Alice C. Saylor, Constance L. Abrams, Richard E. Weicher, Paul R. Hitchcock, George A. Aspatore, Michael E. Roper, William C. Gibb, and Robert B. Batchelder. Mark L. Evans entered an appearance for intervenor General Electric Railcar Services Corporation.

On the brief of intervenors in support of Southern Pacific Transportation Company were Jo A. DeRoche for Montana Rail Link, Inc., and Karlheinz Morell for San Luis Central Railroad Company, et al. Laurence H. Gold entered an appearance for intervenor Montana Rail Link, Inc.

Gordon P. MacDougall was on the brief for intervenor United Transportation Union-Illinois Legislative Board in support of Southern Pacific Transportation Company.

J. Raymond Clark entered an appearance for intervenor Sandersville Railroad Company. Myles L. Tobin entered an appearance for intervenor Illinois Central Railroad Company. Christopher E. Hagerup entered an appearance for intervenors Interail, Inc., et al.

Before: WALD, SILBERMAN, and ROGERS, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

Dissenting opinion filed by Circuit Judge ROGERS.

SILBERMAN, Circuit Judge:

Chicago and North Western Railroad (CNW) petitioned for review of the ICC's promulgation of rules concerning rates at which railroads exchange railcars. After CNW moved to withdraw as petitioner on March 20, 1995, intervenors Southern Pacific Transportation Company and its affiliated railroads (SP) moved to substitute as petitioner. 1 Since SP is not a "party aggrieved" under the Hobbs Act, 28 U.S.C. Sec. 2344

Page 585

(1994), we deny SP's motion to substitute and dismiss the petition.

I.

The petition in this case arises out of the mandatory interchange requirement that has characterized American railroading for nearly a century. Railroads must permit their cars to be used by other carriers to carry freight on other lines, as well as accept the cars of other carriers onto their lines. Mandatory interchange allows freight to travel from point A to point B in one car (obviating the need to move freight between cars) even where no one railroad's lines connect points A and B. See Baltimore & O.C.T.R.R. Co. v. United States, 583 F.2d 678, 681 (3d Cir.1978), cert. denied, 440 U.S. 968, 99 S.Ct. 1520, 59 L.Ed.2d 784 (1979). The rates at which cars are leased in mandatory interchange have traditionally been set through regulation rather than through the operation of the market.

Since 1976, Congress has required the ICC to give consideration to a variety of factors when it prescribes rates, including "current costs of capital, repairs, materials, parts, and labor" as well as "the transportation use of each type of freight car, the national level of ownership of each type of freight car, and other factors that affect the adequacy of the national freight car supply." 49 U.S.C. Sec. 11122(b) (1994). In 1977, the ICC adopted a formula that prescribed car hire rates for a variety of car types. Car Service Compensation--Basic Per Diem Charges--Formula Revision in Accordance with the Railroad Revitalization and Regulatory Reform Act of 1976, 358 I.C.C. 716 (1977).

The ICC's approach was a flop. The most troubling defect was its failure to adapt to changing market circumstances. Despite rampant car surpluses in the early 1980s, for example, car hire rates increased--leading to still greater car surpluses. In 1985, the ICC suspended annual updates to the car hire rates, and sought comments on possible solutions to the formula's difficulties. Car Service Compensation--Basic Per Diem Charges (Postponement of the Annual Car-Hire Charge Update for 1983), 1 I.C.C.2d 742 (1985). A coalition of railroad industry participants, in October 1990, submitted a proposed solution to the ICC's car hire woes. The coalition's proposal called for immediate deprescription--setting rates by bilateral negotiation between car owners and car users rather than by ICC formula--for new cars, and gradual deprescription over 10 years for existing cars.

The Commission issued two notices of proposed rulemaking, received numerous comments, issued final rules, and then granted two petitions for reconsideration. In the course of the rulemaking, the Commission changed--sometimes reversed--its position on a variety of issues, particularly on the effective date of the definition of new cars and on the applicability of the right of independent action under 49 U.S.C. Sec. 10706. 2 The end result was a program very much like that proposed to the ICC in the first place. Under the program, existing cars remain subject to prescribed rates--fixed at 1990 levels--for 10 years; carriers may deprescribe 10% of their fleets in each of those 10 years. The rates for new cars, defined as cars built after January 1, 1993, are determined by bilateral negotiation and, if necessary, arbitration under a rule adopted as part of the Code of Car Hire Rules. 3 The arbitration is of the final offer selection, or "baseball style," variety, in which the arbitrator must select one of the parties' final offers and may not consider other arbitral awards or other offers for similar cars. Finally, the ICC decided that the right of independent action

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afforded carriers under 49 U.S.C. Sec. 10706 does not apply to the arbitration rule because the rule "plainly is not one that forces participants to be parties to collectively set rates." Joint Petition for Rulemaking on Railroad Car Hire Compensation, 9 I.C.C.2d 1090, 1102 (1993) (Reconsideration). 4

Over the course of the rulemaking, SP participated twice. After the Commission issued its first notice, SP submitted a comment on the proposed rulemaking stating that it "generally support[ed] the implementation of the Commission's proposed rules and exemption in these proceedings, subject to the important qualification that such proposed rules and exemption be expressly written to afford carriers, car users, and car owners a subsequent opportunity to seek Commission review of the deprescription in the event unforeseen problems develop which undercut the public interest benefits that the Commission would be seeking to achieve through deprescription." Comments of Southern Pacific Transportation Company, et al. at 3 (Mar. 18, 1991) (SP Comments). SP further stated that it "believe[d] that a framework of bilateral agreements is vastly preferable to any system imposed by regulation and [was] generally supportive of the proposed car hire rules and exemption in these proceedings which provide for a phased deprescription of car hire over a 10-year period." Id. at 4. It proposed that the final rules include a section, entitled "Supplemental Review," providing for further ICC review of the deprescription regime should unforeseen difficulties arise. 5 SP acknowledged that "the Commission always retains the right, upon petition or upon its own motion, to reopen or institute a proceeding in appropriate circumstances," but expressed concern lest the "impression be left of the Commission abrogation of participation in the car hire deprescription process." Id. at 6.

SP submitted further comments on May 1, 1991. Reiterating its concern that the ICC was venturing into unexplored territory, SP this time conditioned its support for the proposed rules "upon explicit inclusion of a procedure for subsequent Commission review." Reply Comments of Southern Pacific Transportation Company, et al. at 3 (May 1, 1991) (SP Reply Comments). No such provision was included in the ICC's rules.

On February 11, 1994, CNW filed a petition for a declaratory order (1) that a carrier could opt out of the Code of Car Hire arbitration rule while remaining a party to the remainder of the Code, and (2) that a carrier not participating in the arbitration rule could set its own rates "subject only to the Commission's regulatory authority under 49 U.S.C. Sec. 11122(b)." In addition to its comments in the rulemaking, SP filed a "Reply in Support of Institution of Declaratory Order Proceeding." It only asserted, however, that the issues were of "industry-wide importance" and that "[t]he time and expense involved in litigation over these issues on a case-by-case basis will be obviated by the Commission's expeditious resolution of the matter in a declaratory order proceeding." SP expressed no opinion on the merits of CNW's petition.

The Commission ostensibly denied CNW's request as to the first issue, but stated that the right of independent action did not apply to the arbitration rule, thus settling the matter. The ICC issued a declaratory order as

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to the second issue that a non-Code participant may set its own rates until a complaint is filed with the...

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