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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 3, 1998 Decided July 28, 1998

No. 97-5119

The Munitions Carriers Conference, Inc. and

National Motor Freight Traffic Association,

Appellees/Cross-Appellants

v.

United States of America, et al.,

Appellants/Cross-Appellees

Consolidated with 97-5240

Appeals from the United States District Court

for the District of Columbia

(No. 96cv00056)

(No. 97cv00595)

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Edith S. Marshall, Assistant U.S. Attorney, argued the

cause for appellants/cross-appellees, with whom Wilma A.

Lewis, U.S. Attorney, Mary Lou Leary, U.S. Attorney at the

time the briefs were filed, and R. Craig Lawrence and

Benjamin R. Barnett, Assistant U.S. Attorneys, were on the

briefs.

John R. Bagileo argued the cause for appellees/crossappellants, with whom Claire Shapiro was on the briefs.

Before: Edwards, Chief Judge; Wald and Ginsburg,

Circuit Judges.

Opinion for the court filed by Circuit Judge Ginsburg.

Ginsburg, Circuit Judge: After the Congress deregulated

the motor carrier industry, the Military Traffic Management

Command of the United States Army announced that it would

begin soliciting competitive bids for the carriage of Foreign

Military Sales (FMS) goods, which are military goods sold by

the United States to foreign governments. The Munitions

Carriers Conference and the National Motor Freight Traffic

Association--trade associations comprising groups of carriers

who transport FMS goods and general commodities for the

MTMC--sued, arguing that deregulation had not eliminated

the prohibition upon the Government's negotiating lower

prices for the shipment of such goods. The district court

agreed with the Carriers. We reverse, and hold that the

MTMC is not prohibited from seeking competitive bids for

the carriage of FMS goods.

I. Background

Once upon a time the United States banned price competition among interstate motor carriers of freight. See Howe v.

Allied Van Lines, Inc., 622 F.2d 1147, 1152-54 (3rd Cir. 1980)

(describing institution of tariff regime for railroads in 1887

and its extension to motor carriers in 1935). Each carrier

was required to file with the late Interstate Commerce Commission a tariff of its prices and conditions of carriage. See

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49 U.S.C. s 10762(a)(1) (1994) (repealed 1995). The carrier

could not charge a shipper any rate other than the rate in the

filed tariff, see 49 U.S.C. s 10761(a) (1994) (repealed 1995),

give any shipper "preferential treatment," see s 10735(a)(1),

or discriminate "unreasonably" in its charges to similarly

situated shippers, see s 10741(b) (1994) (repealed 1995).

From the outset the Government in its role as a shipper

was exempt from this regime, so that any carrier could carry

goods for the Government "free or at reduced rates." See 49

U.S.C. s 22 (1887) (now codified in revised form at 49 U.S.C.

s 13712 (Supp. I 1995); Howe, 622 F.2d at 1154 ("Congress

intended to preserve the federal government's power to bargain with carriers, or to impose upon carriers preferential

rates and terms--free of the antidiscrimination provisions of

the Interstate Commerce Act, and free of regulation by the

[ICC]"). When the railroads were facing severe financial

problems in 1940, however--due in part to this government

privilege, see, e.g., S. Rep. No. 76-433, at 1-3 (1939); S. Rep.

No. 79-522, at 7 (1945)--the Congress for the first time

required the Government to pay "the full applicable commercial rate" for all transportation (whether by rail or by motor

carrier) it procured. See 49 U.S.C. s 10721(a)(1) (1994) (repealed 1995). The Congress also revised s 22 to make clear

that, notwithstanding the general prohibition of discrimination, a carrier could still voluntarily offer the Government

transportation "at reduced rates." See 49 U.S.C.

s 10721(b)(1) (1994) (now codified in revised form at 49

U.S.C. s 13712 (Supp. I 1995)). As of 1940, then, the Government could not require reduced rates but it could still negotiate them. In a further limitation, the Court of Claims held

that the Government could negotiate reduced rates only when

the goods involved were transported "for the United States."

Baggett Transportation Co. v. United States, 670 F.2d 1011

(Ct. Cl. 1982) (adopting ICC holding that transport was not

"for the United States" unless Government directly received

all pecuniary benefit of reduced price). Under Baggett, the

MTMC could not seek reduced rate transportation for shipments of FMS goods because the cost of shipping such goods

is passed through to the foreign purchaser. See id.

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In 1995 the Congress found that motor carriage had become a "mature, highly competitive industry where competition disciplines rates far better than tariff filing and regulatory intervention," and that rate regulation was no longer

necessary except for "[two] specialized categories of trucking

operations." S. Rep. No. 104-176, at 10 (1995) (referring to

household goods and certain noncontinguous domestic trade,

hereinafter collectively "household goods"); see id. at 43

(noting that "[f]or the two categories of traffic for which rates

would be regulated, new [s] 13701(a) would import the basic

rate reasonableness requirement"); see also 49 U.S.C.

s 13701 (also imposing reasonableness requirement on

"through routes," "divisions of joint rates," and rates "made

collectively by [any group of] carriers under agreements

approved" by the Surface Transportation Board). Therefore,

the Congress abolished the ICC and repealed the provisions

(1) requiring that a carrier file tariffs for all types of goods it

transports; (2) prohibiting discrimination and preferential

treatment; (3) prohibiting government requisition of reducedrate transport; and (4) permitting a carrier voluntarily to

offer the Government reduced rates.

The Congress then enacted a new statutory scheme under

which a carrier need file tariffs only for the transportation of

household goods, as to which preferential treatment is still

prohibited. See 49 U.S.C. ch. 137, s 13704(a)(2) (Supp. I

1995). At the same time, the Congress enacted a new version

of the reduced-rate provision for government shipments. See

49 U.S.C. s 13712 (Supp. I 1995) ("A carrier providing transportation ... for the United States Government may transport property ... without charge or at a rate reduced from

the applicable commercial rate.")

In the wake of this comprehensive deregulation, the MTMC

decided that it could solicit competitive bids for transportation of FMS goods notwithstanding the Baggett decision.

Seeking to realize the economies of scale that would be

available if FMS and Department of Defense goods were

transported together, the MTMC published a policy in December 1995 stating that a carrier wishing to transport FMS

goods must make one bid for the transportation of DOD and

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FMS goods at the same price. See Movement of Foreign

Military Sales (FMS) Shipments--Policy Change, 60 Fed.

Reg. 64,031 (Dec. 13, 1995).

The two carriers' associations filed suit and the district

court invalidated the policy upon both procedural and substantive grounds. See Munitions Carriers Conference, Inc.

v. United States, 932 F. Supp. 334 (D.D.C. 1996) (Munitions

I). As to procedure, the court held that the MTMC had

failed to comply with the requirement of a 60-day period for

notice and comment before a new policy can take effect. Id.

at 336-340; see 41 U.S.C. s 418b(a). Turning to the substance of the matter, the district court said that "there is still

a two-level rate regime."

The new statute codified at s 13712 still anticipates

"discounted rates" for the government, and the rationale

of Baggett requires that FMS rates not include this

discount. To require carriers to submit one rate for

these two types of shipments would either (1) contravene

the holding of Baggett by giving foreign governments the

benefit of discounted rates; or (2) render the statutory

discount provision a nullity by preventing carriers from

submitting discounted bids for any MTMC work.

Id. at 341.

After the district court's opinion issued the MTMC announced that in 60 days it would begin accepting bids for the

transportation of FMS goods apart from DOD freight. Under the new policy, however, a carrier transporting FMS

goods would have to follow the rules set forth in Military

Freight Traffic Rules Publication No. 1A, whereas under the

former tariff regime the MTMC had had to accept the terms

and conditions filed by each carrier as part of its tariff. See

Movement of Foreign Military Sales Material Under Department of Defense Standard Tender of Freight Services

MT Form 364-R--Policy Change, 61 Fed. Reg. 58,679 (Nov.

18, 1996). The Carriers commented in response to this

Notice that the requirement to abide by Publication 1A was

unlawful under the substantive ruling in Munitions I. The

MTMC was not persuaded and it implemented the new policy

as proposed.

The Carriers again sued. This time the same court granted summary judgment to the MTMC, holding that the system

of separate competitive bids for FMS and DOD freight

moving subject to the rules in Publication No. 1A did not

conflict with Munitions I. See Munitions Carriers Conference, Inc. v. United States, Civ. No. 97-0595 (D.D.C. Aug. 1,

1997) (Munitions II). In case No. 97-5119 the MTMC

appeals the substantive aspect of Munitions I, arguing that

there is no two-level regime and that it is free to seek bids in

the manner most convenient for it. In case No. 97-5240 the

Carriers appeal Munitions II.

II. Analysis

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We hold that the district court erred in Munitions I in

holding that there is still "a two-level rate regime" and upon

that basis invalidating the MTMC's single-rate bidding

scheme. The Carriers' appeal of Munitions II is therefore

moot.

A. Munitions I

Although the Carriers do not argue that the MTMC's

appeal of the decision in Munitions I (invalidating its first

policy) was mooted when the MTMC adopted the policy at

issue in Munitions II, we must consider the question in order

to be confident of our jurisdiction. See, e.g., FW/PBS, Inc. v.

City of Dallas, 493 U.S. 215, 231 (1990); Floyd v. District of

Columbia, 129 F.3d 152, 155 (D.C. Cir. 1997). Foreseeing

this jurisdictional issue, the MTMC, after prevailing in Munitions II, republished its first policy in a Notice stating that, if

upheld in its appeal of Munitions I, it would reimpose that

policy. See Movement of Foreign Military Sales (FMS)

Shipments--Proposed Policy Change, 62 Fed. Reg. 58,946

(Oct. 31, 1997). That Notice keeps the validity of the first

policy in contention and therefore keeps this matter a live

controversy. And so to the merits.

The MTMC argues that by replacing the comprehensive

tariff regime of Chapter 107 with the household goods regime

of Chapter 137 the Congress intended to allow the market in

all other motor carriage to operate freely; therefore, the

MTMC may seek combined bids for the transportation of

FMS and DOD freight just as any other buyer in a free

market may solicit bids for the service it requires. The

Carriers counter that s 13712 creates (or preserves) a twotiered rate scheme in which discounts are still prohibited for

FMS goods. In their view, combined bids must be prohibited

because such bids would require a carrier either to give a

discount for FMS goods, contrary to s 13712, or to give up its

"right," pursuant to the same section, to offer a discount for

DOD freight.

As the MTMC points out, there is a fundamental flaw in

the Carriers' theory: it assumes that s 13712 applies to the

transportation of all types of goods, as did s 10721 under the

tariff regime. Chapter 107 made both tariffs and the requirements of nondiscrimination and nonpreferential treatment

universal; s 10721 (the predecessor to s 13712) exempted all

government transportation--and only government transportation--from the tariff requirement. Now that Chapter 137

imposes tariff and nonpreferential treatment requirements

only upon the carriage of household goods, however, and

eliminates any requirement of nondiscrimination, a carrier of

non-household goods may offer any price to any shipper and

negotiate different rates with different shippers. This is

because s 13712 states only that a carrier "may transport

property ... for the United States Government ... at a rate

reduced from the applicable commercial rate." That is, nothing in s 13712 (or elsewhere in Chapter 137) prohibits a

carrier from offering such discounted rates to others: the

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nondiscrimination provision (s 10741(a)) was repealed; and

the nonpreferential treatment requirement (s 10735(a)(1))

was succeeded by a provision (s 13704(a)(2)) that applies only

to household goods.

Indeed, the Carriers concede that a carrier may negotiate

rates with the Government as it does with other shippers.

Nonetheless the Carriers maintain that the Government may

not negotiate rates when it is acting on behalf of "a third

party," such as a foreign government purchaser of FMS

goods. The Carriers' argument is based upon the reference

in s 13712 to "the applicable commercial rate": for every

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good there is a commercial rate, they say, and though a

foreign shipper may on its own negotiate a reduction from

that rate, the Government may not use its market power

("the threat of the loss of all freight moving under DOD

tenders") to negotiate for such shippers because that would

"force" a carrier to extend to a foreign government the

benefit of the reduced rates that under Baggett were "previously given to DOD alone."

The Carriers' theory misconstrues both s 13712 and Baggett. In holding that the Government could negotiate rates

only when the pecuniary benefit would go directly and wholly

to the Government, Baggett was ensuring the integrity of the

tariff rate, no-discrimination scheme under which carriers

were prohibited from negotiating reduced rates for shippers

other than the Government. In other words, Baggett prohibited discounts under s 10721 for non-government goods because the exemption in s 10721 was limited to government

goods and at that time non-government shippers were forbidden to seek discounts. Now that the tariff scheme has been

repealed, however, any shipper is free to seek a discount, as

the Carriers concede. Any discount now obtained by the

Government on behalf of a private shipper, therefore, would

not be a "reduced" rate under s 13712 but would be simply a

rate negotiated in the marketplace--and there is no indication

that such negotiated discounts are prohibited.

The Carriers' theory that the statutory reference to "applicable commercial rates" somehow limits the MTMC's negotiating options is also ill-founded. There are today no known

commercial rates other than the tariff rates filed for household goods. The only plausible way to read "applicable

commercial rates," therefore, is as a reference to tariff rates

for household goods. This reading is also consistent with the

usage of the phrase elsewhere in the statute over time.

Tariff rates were the only rates from 1887, when s 22 (the

original version of s 13712) was enacted, until 1995; during

that period the "applicable commercial rate[s]" were necessarily the tariff rates. In the current version of the statute,

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place, which strongly suggests that the phrase "applicable

commercial rate[s]" still refers to tariff rates (and perhaps to

collectively determined rates, see 49 U.S.C. s 13703, a matter

we need not decide in this case). For example, s 13710

states that a carrier must make available a copy of the rate

"applicable to its shipment or agreed to between the shipper

and carrier"; and s 13711 specifically addresses the difference--which could arise during the period of transition from

regulation to the market--between the "applicable rate" and

the "negotiated rate."

In addition, as the Government argues, there is no other

intelligible way to read the phrase "applicable commercial

rate[s]" because the statute gives no guidance on how to

determine such rates if they are not understood to be tariff

rates. Although the Carriers argue that their own internal

price lists should be considered the applicable commercial

rates, they offer no conventional legal argument to anchor

this implausible theory either in the text or the structure of

the statute. Tariffs were filed in a highly regulated environment overseen by the ICC; the tariff requirement was integral to the statutory purpose of ensuring that all rates were

"just and reasonable" and not "unduly discriminatory." In

today's unregulated marketplace, however, a carrier's internal

price list has no legal significance whatsoever. The carrier

may discriminate among different shippers; only the customer, not the Government, decides whether a price is reasonable; and 'just'-ness has nothing to do with the matter. To

read "applicable commercial rate[s]" as the Carriers' own

price lists, therefore, would be to read the Carriers' wish list

into the law.

As explained in our discussion of Baggett, a negotiated

rate--even if it is lower than the rates that others are able to

negotiate--is not a "reduced" rate. This conclusion is consistent with the purpose of s 13712 and its predecessors, namely, to allow carriers to offer and the Government to accept

discounted rates notwithstanding the general prohibition of

discrimination among shippers under the tariff regime. The

Government, not the carriers, has been the intended beneficiary of this provision in all prior versions. The Carriers'

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interpretation of s 13712, on the other hand, would benefit

them and harm the Government by prohibiting the MTMC

from using its market power to negotiate lower rates for the

shipment of FMS goods. That the Congress intended thus to

deny the Government and its FMS customers the benefit of

lower negotiated rates while deregulating the motor freight

industry and creating a free market for the benefit of all

other shippers is, to say the least, counter-intuitive. More

important, the suggestion remains completely unsupported.

The most reasonable way to interpret s 13712, then, is as

the MTMC suggests: the provision exempts a carrier from

the nondiscrimination provisions imposed by the rump tariff

regime retained for household goods; therefore, the exemption being no broader than the rule, it too applies only to

household goods moving under tariff rates. Deregulation

removed the prior limitation under which only the Government could bargain with carriers. Because any shipper may

now bargain for a lower rate, the Government may also

bargain on behalf of non-government shippers. Neither Baggett nor s 13712 provides any reason to treat FMS goods

differently from DOD goods, so there is no reason the MTMC

cannot solicit bids in the form of one combined offer for the

transportation of FMS and DOD freight. In sum, the policy

announced in the 1995 Notice does not violate anything in

Chapter 137.

B. Munitions II

The MTMC has stated that if it prevails in its appeal of

Munitions I--as it now does--it will again implement the

solicitation policy at issue in that case. See 62 Fed. Reg.

58,946. Because that policy will supersede the policy upheld

by the district court in Munitions II, the Carriers' appeal of

the latter case is now moot.

III. Conclusion

We reverse the judgment of the district court in Munitions

I and hold that the MTMC policy at issue in that case is

lawful. We dismiss as moot the appeal in Munitions II.

So ordered.

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