Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-01058/USCOURTS-caDC-98-01058-0/pdf.json

Parties Involved:
Association of American Railroads
Amicus Curiae for Petitioner
FMC Corp.
Intervenor
FMC Wyoming Corporation
Intervenor
Surface Transportation Board
Respondent
Union Pacific Railroad Company
Petitioner
United States of America
Respondent
Western Coal Traffic League
Amicus Curiae for Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 12, 1999 Decided February 15, 2000

No. 98-1058

Union Pacific Railroad Company,

Petitioner

v.

Surface Transportation Board and

United States of America,

Respondents

FMC Corp. and

FMC Wyoming Corporation,

Intervenors

On Petition for Review of an Order of the

Surface Transportation Board

Arvid E. Roach, II argued the cause for petitioner. With

him on the briefs were James V. Dolan and Lawrence E.

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Wzorek. Carolyn F. Corwin, Louise A. Rinn, and Schuyler

W. Livingston, Jr., entered appearances.

Richard E. Weicher, Myles L. Tobin, P. Michael Giftos,

James V. Dolan, Louis P. Warchot, and Samuel M. Sipe, Jr.,

were on the brief for amicus curiae Association of American

Railroads.

Thomas J. Stilling, Attorney, Surface Transportation

Board, argued the cause for respondents. With him on the

brief were Henri F. Rush, General Counsel, Craig M. Keats,

Associate General Counsel, Theodore K. Kalick, Attorney,

Joel I. Klein, Assistant Attorney General, United States

Department of Justice, and John J. Powers, III and John P.

Fonte, Attorneys. Robert B. Nicholson, Attorney, and Ellen

D. Hanson, Deputy General Counsel, Surface Transportation

Board, entered appearances.

Edward D. Greenberg, David K. Monroe, and William F.

Krebs were on the brief for intervenors. David A. Stein

entered an appearance.

William L. Slover, John H. LeSeur, and Andrew B. Kolesar, III were on the brief for amicus curiae Western Coal

Traffic League.

Before: Edwards, Chief Judge, Silberman and Henderson,

Circuit Judges.

Opinion for the Court filed by Circuit Judge Silberman.

Silberman, Circuit Judge: Union Pacific Railroad Company petitions for review of a Surface Transportation Board

decision compelling the carrier to establish for shipper FMC

Wyoming common carriage rates that can be used in combination with contract rates FMC secured with another railroad. We deny the petition.

I.

FMC Wyoming, Inc., transports soda ash by rail from its

production facilities in Westvaco, Wyoming, to customers in

the eastern and southern United States. No single rail

carrier can provide origin-to-destination service for the entirety of this route. That is because Union Pacific Railroad

Company is a so-called "bottleneck" carrier for the initial

segment: it is the only railroad providing service directly to

and from Westvaco. Depending on the particular destination

to which it wishes to ship, however, FMC has a choice of

carriers it may use to complete a route. FMC had entered

into contracts with Union Pacific to carry soda ash to Midwest "gateways" in East St. Louis and Chicago. Then the

soda ash was transported under separate contracts on a

second railroad, CSX Transportation, Inc., to FMC's customers. These contracts were to expire at the end of 1997.

During the last year that these contracts were in effect, the

Surface Transportation Board issued its so-called Bottleneck

decisions, which addressed the prerogatives of shippers who

transport goods over bottleneck rail segments. See Docket

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Nos. 41242 et al., Central Power & Light Co. v. Southern Pac.

Trans. Co., STB Decision of December 27, 1996 ("Bottleneck

I"), aff'd on reh'g, STB Decision of April 28, 1997 ("Bottleneck

II"). It has been a venerable principle of railroad rate

regulation that the reasonableness of a rate is to be assessed

on a "through basis"--that is to say, a shipper may challenge

only the rate of the origin-to-destination route as a whole,

rather than the reasonableness of rates charged for a particular segment of the route. See, e.g., Lousiville & Nashville

R.R. v. Sloss-Sheffield Steel & Iron Co., 269 U.S. 217, 234

(1925). In the Bottleneck cases, three shippers challenged

this longstanding principle. Each shipper sought to compel a

bottleneck rail carrier to establish separate local rates for a

bottleneck segment of a through route, which would then be

subject to separate reasonableness challenges before the

Board. Recognizing that the shippers' complaints raised

common issues that would affect broadly the railroad industry

and its customers, the Board sought public comment. The

respondent bottleneck carriers, supported by the railroad

industry, urged that the shippers' complaints be dismissed.

They argued that granting the shippers the relief sought, and

allowing separate rate challenges to bottleneck rail segments,

would severely damage the revenue adequacy of their industry.

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The Board defines a reasonable rate as one that allows a

railroad to recover the "Stand Alone Cost" (SAC) of providing

for the shipper's transportation.1 However, competition over

non-bottleneck segments of rail tends to drive rates for those

segments down toward marginal cost, a level often lower than

average total cost given the capital-intensive nature of the

railroad industry. If the Board were to permit shippers to

challenge separately the reasonableness of a bottleneck segment rate, the railroads argued, the through rate would

inevitably be lower than the overall cost to the carriers of

providing the transportation.

The Board's decision reaffirmed its longstanding policy that

a shipper ordinarily is only entitled to challenge the reasonableness of rates on a through basis, even where the route

contains a bottleneck segment. See Bottleneck I at 11-13.

But the Board created a significant exception to this principle. Where a bottleneck carrier cannot provide origin-todestination service for an entire through route, and where a

shipper secures a separate negotiated contract for the nonbottleneck segment--as opposed to a common carriage rate

according to a published tariff--the shipper may separately

challenge a common carriage bottleneck segment rate. See

Bottleneck I at 13-14. The Board based this exception on its

interpretation of a provision of the Staggers Rail Act of 1980,

see 49 U.S.C. s 10709(c), which the Board concluded left it

without "rate reasonableness jurisdiction" over negotiated

contracts between shippers and rail carriers. Bottleneck I at

13. Then, on rehearing in Bottleneck II, the Board clarified

the implications of this "contract exception." It stated that,

where a shipper entered into a contract with a non-bottleneck

carrier, the Board if necessary would compel the bottleneck

carrier to establish a separately challengeable rate that could

be used to complete the transportation. See Bottleneck II at

__________

1 The SAC is the rate that a hypothetical railroad would charge

in order to recover the costs of constructing and operating a

railroad capable of accommodating the shipper's traffic. See Coal

Rate Guidelines, 1 I.C.C.2d 520, 554 (1985); see also Burlington N.

R.R. Co. v. STB, 114 F.3d 206, 212 (D.C. Cir. 1997).

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9-10. Both the shippers and railroads petitioned for review

of the Bottleneck decisions.

While the Bottleneck cases were pending before the Eighth

Circuit, FMC sought to negotiate new contracts with each of

its rail carriers. It did reach new contracts with CSX for the

destination segment, but it was unable to forge a new agreement with Union Pacific on the rates for the bottleneck origin

segment. FMC then requested that Union Pacific establish,

pursuant to its statutory common carrier obligations, see 49

U.S.C. s 11101(a), common carriage rates for its portion of

the route. Union Pacific ultimately acquiesced and established rates for the origin segment. But there was a "kicker." Those rates could be used only in conjunction with the

common carriage rates that CSX had maintained for the

destination segment--not with the FMC-CSX contract rates.

FMC filed a petition before the Board protesting Union

Pacific's condition, arguing that the Bottleneck cases obligated Union Pacific to establish rates that could be used in

conjunction with FMC's contracts with CSX.

The Board agreed. See Finance Docket No. 33467, FMC

Wyoming Corp. v. Union Pacific R.R. Co., STB Decision of

Dec. 12, 1997 ("FMC Decision"). The Board explained that

Union Pacific's action was at odds with the contract policies it

established in its Bottleneck decisions:

In Bottleneck I, we ... determined that, notwithstanding

prior precedent generally restricting rate reasonableness

challenges to origin-to-destination rates, when the nonbottleneck segment of a through route is covered by a

railroad/shipper contract, the rate covering the bottleneck segment is separably challengeable.... As we

further explained in Bottleneck II ... notwithstanding

[Union Pacific's] reluctance to have its [proposed] rate

separately challenged, once a shipper has a contract rate

for transportation to or from an established interchange,

the bottleneck carrier must provide a rate that permits

the shipper to utilize its contract with the non-bottleneck

carrier.

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FMC Decision at 4 (internal citations omitted). The Board

accordingly ordered Union Pacific to establish common carriage rates that could be used by FMC in conjunction with

the FMC-CSX transportation contracts. Id. at 6.

Union Pacific petitioned for review. We held Union Pacific's petition in abeyance pending the Eighth Circuit's resolution of the Bottleneck cases. In MidAmerican Energy Co. v.

STB, 169 F.3d 1099 (8th Cir. 1999), the Eighth Circuit

affirmed most of the Board's conclusions in the Bottleneck

cases without reaching the merits of the so-called "contract

exception" policy. It concluded that the Bottleneck contract

exception policy was not ripe because none of the petitioning

shippers had secured a contract for a non-bottleneck segment. See id. at 1109.

II.

Although we now have before us actual negotiated contracts for the non-bottleneck portions of routes, without which

the Eighth Circuit thought the controversy was not ripe, the

Board maintains the bottleneck contract exception policy

itself is still not ripe because it has not yet ruled on the

reasonableness of any bottleneck rates. All it has done is to

order Union Pacific to publish separate tariffs for the bottleneck portion of a bifurcated route which, then, can be challenged in proceedings before the Board.

Examining petitioner's argument carefully in light of the

Board's ripeness challenge, we note that petitioner claims

that to be ordered to publish separate bottleneck rates is

contrary to law because the only purpose of publication is to

permit an independent challenge to those rates' reasonableness. Petitioner claims that procedure is inconsistent with

the statute and governing cases construing the statute. The

Board concedes--as it must--that petitioner certainly is entitled to challenge its order directing publication. That challenge, however, would be a sterile exercise if it did not bring

into play the underlying Board Policy on which the order is

predicated. We think, therefore, the Board's contract exception is squarely before us. Yet the Board has a point.

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Petitioner devotes much of its brief to the proposition that

permitting separate challenges to the reasonableness of published bottleneck rates will jeopardize the adequacy of U.S.

railroad revenue--which is a statutory objective.2 We do not

see how that contention can possibly be ripe before the Board

has ever decided the reasonableness of any bottleneck rates.

Even if petitioner were correct in assuming that the very

possibility of separate challenges to bottleneck rates would

ineluctably put downward pressure on total railroad revenues--an assumption which the Board correctly noted depends upon "numerous imponderables," Bottleneck I at 12

n.21--we could not estimate the amount of diminished revenue, and petitioner's argument perforce depends on the scale

of the financial impact. Accordingly, we have before us a ripe

controversy over the legality of the contract exception to the

bottleneck policy, but we must decide it without regard to

petitioner's concerns about revenue adequacy. Such a claim

will have to await Board rate rulings.

III.

A.

As we noted, the Board justified its exceptions-a partial

departure from the long-standing principle that the reasonableness of a railroad rate is to be judged on a "through"

basis-on the Staggers Rail Act of 1980, Pub. L. No. 96-448,

94 Stat. 1895. A provision of that Act states:

__________

2 See 49 U.S.C. s 10101(3) (articulating objective of "promot[ing] a safe and efficient rail transportation system by allowing

rail carriers to earn adequate revenues"); 49 U.S.C. s 10704(a)(2)

(In setting ratemaking policies, "[t]he Board shall maintain and

revise as necessary standards and procedures for establishing [adequate] revenue levels."). In the event that the Bottleneck contract

exception leads to the calamitous revenue consequences that Union

Pacific and amicus Association of American Railroads predict, it is

conceivable that sufficient tension might exist between the Board's

revenue-adequacy obligations and the language of section 10709(c)

to require the Board to reassess its Bottleneck contract holdings.

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A contract that is authorized by this section, and transportation under such contract, shall not be subject to this

part, and may not be subsequently challenged before the

Board or in any court on the grounds that such contract

violates a portion of this part.

49 U.S.C. s 10709(c)(1). The Board, in the Bottleneck cases,

construed this provision to mean that it is "without rate

reasonableness jurisdiction over the rates of any rail transportation provided by contract." Bottleneck I, at 13. Where

one of the two segments of a route is governed by a contract

rate, the Board reasoned, it could not assess the reasonableness of the rate as a whole, as to do so would "indirectly

result in review of the contract rate." Id. Petitioner quarrels with the Board's interpretation of this section--particularly objecting to the Board's use of the term "jurisdiction."

Union Pacific maintains that the statute merely bars the

Board from regulating the terms of shipper-carrier contracts;

it does not preclude the Board from continuing to assess the

reasonableness of the entire through rate. By so doing, the

Board would only be "taking the contract rate into account,"

not regulating its terms.

We think the statute can be read either way; it is ambiguous as to the scope of the Board's authority ("authority"

seems a better term than "jurisdiction" in this setting) over a

contract, which is why the Board relies on Chevron U.S.A.

Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837

(1984), to support its interpretation of the statute. Petitioner

never places its challenge to the Board's statutory interpretation in the Chevron framework, but implicitly suggests that

the Board's interpretation is unreasonable (even if the statute

is ambiguous), because it is inconsistent with the Board's

interpretation of other jurisdictional statutory provisions and

court cases sustaining those interpretations. Union Pacific

relies heavily on Great Northern Railway Co. v. Sullivan, 294

U.S. 458 (1935). In Great Northern, a shipper challenged the

reasonableness of the rate of an American rail carrier's

segment of an international through route. The Supreme

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Court rejected the shipper's claim; even though the ICC3

lacked true "jurisdiction" over the Canadian segment of the

through route under the Interstate Commerce Act,4 the shipper could not separately challenge the domestic carrier's rate.

See id. at 463; see also Canada Packers, Ltd. v. Atchison,

Topeka & Santa Fe Ry. Co., 385 U.S. 182, 183-84 (1966)

("[W]here a carrier performing transportation within the

United States enters into a joint through international rate

covering transportation in the United States and abroad, the

Commission does have jurisdiction to determine the reasonableness of the joint through rate and to order the carrier

performing the domestic service to pay reparations in the

amount by which that rate is unreasonable."). Union Pacific

argues that, just as the Board has authority to take into

account an international portion of a route over which it has

no jurisdiction in determining the reasonableness of a

through rate, the Board must consider a contract rate in

making a through rate reasonableness determination despite

its inability to regulate the contract itself under section

10709(c).

The Board has some difficulty in reconciling its construction of section 10709(c) with its application of the general

jurisdictional provision at issue in Great Northern. It might

well be thought that the Board has even less authority over

the Canadian portion of a through shipment (really outside of

its "jurisdiction") than it does over a domestic contract, and

therefore it would be more justified for the Board to allow a

shipper to protest the domestic portion of a through international rate than a bottleneck rate. But as the intervenor

points out, the situations are quite different economically.

The Great Northern holding--and the broader principle that

the reasonableness of rates is to be assessed on a through

__________

3 The ICC is the predecessor agency to the STB. See ICC

Termination Act of 1995, Pub. L. No. 104-88, 109 Stat. 803.

4 See Interstate Commerce Act of 1887, Pub. L. No. 49-104, 24

Stat. 379. The current provision providing for the Board's jurisdiction is 49 U.S.C. s 10501(a)(2) (Board's jurisdiction applies only "to

transportation in the United States.").

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basis--was based on an understanding that "[t]he shipper's

only interest is that the charge shall be reasonable as a

whole." Great Northern, 294 U.S. at 463; see also Louisville

& Nashville R.R. Co. v. Sloss-Sheffield Steel & Iron Co., 269

U.S. 217, 234 (1925). This is no longer the case. By permitting a shipper to enter into contracts that are beyond review

of the Board, the Staggers Act entitles a contracting shipper

to--as FMC puts it--"the benefit of its bargain." Were its

position to prevail, Union Pacific would be in a position to

recover for itself the "benefit" of FMC's bargain with CSX, as

it could set a rate that allowed it to obtain the difference

between a reasonable through rate and the FMC-CSX contract price.

To be sure, that is not a point that the Board itself made.

But the Board did rely on the recent Staggers Act as

justifying its new policy and we think intervenors' explanation

is implicit in the Board's admittedly terse rationale. In any

event, the Board was entitled to draw the inference that

Congress, in specifically addressing the contract situation,

wished a different result than the old ICC had reached with

respect to international transportation.

Nor is the Board's position in the Bottleneck cases undermined by our decision in Ford Motor Co. v. ICC, 714 F.2d

1157 (D.C. Cir. 1983). In Ford a shipper challenged before

the ICC a joint rate established by two railroad carriers.

After the ICC issued a statement expressly encouraging

settlement of rate reasonableness challenges because of an

"extraordinary case load bulge," the shipper negotiated an

agreement with one of the railroads giving the shipper an

"allowance" which would end automatically "if the ICC ordered a reduction of the joint rate." Id. at 1166-67. In light

of the settlement, the shipper dropped the railroad from its

complaint before the ICC. The ICC granted the remaining

railroad's motion to dismiss the case, concluding that it no

longer had jurisdiction because the settling railroad had been

a "necessary party" to the shipper's rate challenge. The

Commission claimed that it was "impossible ... to determine

the reasonableness of a joint rate or market dominance in the

absence of cost evidence for all participating railroads." Id.

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at 1168 (internal quotations omitted). In rejecting the ICC's

claim, we expressed incredulity that the ICC could make this

claim of "impossibility" in light of the international rate cases

like Great Northern, where "the Commission can and does

determine ... the reasonableness of a joint rate though all

participants are not before the ICC as defendants." Id. at

1169-70.

As the Board correctly observes, Ford reasonably can be

distinguished from this case. See Bottleneck I at 14 n.24.

For one thing, our decision in Ford was plainly influenced by

the inconsistent positions of the ICC in that case. After

expressly encouraging shippers to settle their rate dispute,

the ICC punished a shipper for doing precisely that. See id.

at 1169. Ford also did not involve a challenge to a contract

rate, but instead to a joint rate where one of the carriers

subsequently entered into a side settlement with a shipper.

This is a meaningful distinction, as no separate contract rate

was being "reviewed" by the ICC in Ford. Indeed, the

settlement provided that, if the joint rate were found unreasonable by the Board, the reduced joint rate--rather than the

settlement--would apply. More fundamentally, although

Ford was decided after the Staggers Act it simply did not

address the language of section 10709(c) relied on by the

Board in the Bottleneck cases.5

__________

5 For quite similar reasons, Union Pacific's reliance on the

ICC's decision in Metropolitan Edison Co. v. Conrail, 5 I.C.C.2d

385 (1989), is misplaced. In Met Edison, as in Ford, a shipper

challenged a joint rate where the shipper had entered into a

settlement with one of its rail carriers, not a through rate where

one factor of the transportation was a contract rate from the outset.

And while the ICC did make a general statement in that decision

that its conclusion was not altered by the contractual provisions of

the Staggers Act, see id. at 409 n.32, Met Edison did not specifically

consider the language of section 10709(c). Of course, even if we

were to accept Union Pacific's characterization of this footnote in

Met Edison as a prior interpretation of section 10709(c), the Board

is entitled to change that position if it provides a reasoned explanation for doing so, see Amax Land Co. v. Quarterman, 181 F.2d.

1356, 1365 & n.6 (D.C. Cir. 1999)--which we believe the Board did

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Union Pacific also argues that the Bottleneck contract

exception is inherently inconsistent with other parts of the

Bottleneck decisions. Union Pacific points to the Board's

conclusion that where a bottleneck carrier can provide originto-destination service for the entire through route it cannot

be forced to interchange with another carrier--even if the

shipper has secured a contract for the non-bottleneck segment. Bottleneck I at 7-8; Bottleneck II at 6-7. How can

this conclusion, Union Pacific asks, be reconciled with the

Board's "jurisdiction-stripping" interpretation of section

10709(c)? This is an inconsistency, in our view, born not of

the Board's Bottleneck opinion, but of the Board's separate

statutory obligation to protect a bottleneck shipper's "long

haul" where it can provide origin-to-destination service, see 49

U.S.C. s 10705(a)(2); see also Chicago, Milwaukee, St. Paul

& Pac. R.R. v. United States, 366 U.S. 745, 749-50 (1961).

The Board offers a lengthy and well-reasoned explanation of

the intersection of the conflicting mandates of its contractual

and long-haul provisions, see Bottleneck II at 6-9, and we

think it resolved the tension between these mandates in a

reasonable fashion.

We therefore conclude that, while the objections Union

Pacific raises to the Bottleneck contract exception policy are

well-presented, none of them is persuasive. We affirm the

Board's interpretation of section 10709(c).

B.

We find little merit in Union Pacific's remaining arguments

that the Board nonetheless exceeded its authority when it

compelled Union Pacific to establish rates for the bottleneck

segment that could be used in combination with the FMCCSX transportation contracts. In Bottleneck II the Board

discussed a bottleneck carrier's obligations where a shipper

__________

in this case. See Bottleneck I at 13 (explaining its interpretation of

section 10709(c)); see also id. at 14 (distinguishing Met Edison).

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has entered into a separate contract with the non-bottleneck

rail carrier:

In those circumstances, the bottleneck carrier cannot

insist on only providing joint-rate service and, as a result,

refuse service when it is unable to make those rates;

instead, its common carrier obligation requires it to

provide a rate necessary to complete the transportation.

Bottleneck II at 10. Union Pacific responds that, unlike the

hypothetical carrier discussed in Bottleneck II, it has indeed

offered rates that "complete FMC's transportation." The

Board was right to reject this claim as advancing a distinction

without a difference. Just as the bottleneck carrier effectively negates a shipper-carrier contract by refusing to offer

anything other than joint-rate service, Union Pacific sought to

override the FMC-CSX contracts. We agree with the Board

that Bottleneck II precludes Union Pacific from effectively

"thwart[ing] the right of FMC and its destination rail carriers

to make separate transportation contracts in this way."

FMC Decision at 5.

Union Pacific objects that the Board's order--and the

Board's policy announced in Bottleneck II--violates its statutory right to "rate and route initiative," see 49 U.S.C.

s 10701(c). We do not think this provision helps Union

Pacific. As the Board noted in Bottleneck II, these ratesetting prerogatives are shared by bottleneck and nonbottleneck carriers alike, Bottleneck II at 9-10. Were we to

grant Union Pacific the relief it seeks, it would merely mean

that CSX's rate-setting rights would be undermined, rather

than Union Pacific's. Moreover, to grant Union Pacific "rate

initiative" in this instance would have required the Board to

override the very contract that it is without authority to

review under section 10709(c). There may well be tension

between these two provisions, but we think the Board properly resolved that tension in favor of solicitude for the shipper

and non-bottleneck carrier's contract--particularly since the

non-bottleneck carrier also shares the "rate initiative" that

Union Pacific believes justifies it unilaterally to override the

FMC-CSX contract.

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* * * *

As our colleagues in the Eighth Circuit noted in affirming

the Bottleneck cases' non-contract holdings, the Board is

required to implement statutes that express competing and

occasionally conflicting policy objectives. See MidAmerican

Energy Co., 169 F.3d at 1104-05. We think that the Board

adequately reconciled the particular statutory tensions raised

by the Bottleneck cases; confronting the unenviable task of

balancing the rail carriers' rate and route prerogatives and

the shippers' contract rights, the Board produced what is, on

balance, a reasonable policy. Cf. Bottleneck II at 14 (Morgan,

Chairman, commenting) ("Rather than choosing between

the[ ] two diametrically opposed positions [of the railroads

and shippers]--a result which the statute did not envision--

our decisions in these bottleneck cases have concluded that

Congress intended that these goals be implemented in a

balanced and complementary way."). We deny the petition.

So ordered.

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