Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-01355/USCOURTS-caDC-99-01355-0/pdf.json

Parties Involved:
Surface Transportation Board
Respondent
Union Pacific Railroad Company
Petitioner
United States of America
Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 29, 2000 Decided January 30, 2001

No. 99-1354

Association of American Railroads,

Petitioner

v.

Surface Transportation Board and

United States of America,

Respondents

National Industrial Transportation League, et al.,

Intervenors

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No. 99-1355

Union Pacific Railroad Company,

Petitioner

v.

Surface Transportation Board and

United States of America,

Respondents

On Petitions for Review of Orders of the

Surface Transportation Board

Samuel M. Sipe, Jr. argued the cause for the petitioners.

Cynthia L. Taub, Louis P. Warchot, James V. Dolan, Louise

A. Rinn, S. William Livingston, Jr. and Michael L. Rosenthal were on brief.

Thomas J. Stilling, Attorney, Surface Transportation

Board, argued the cause for the respondents. Joel I. Klein,

Assistant Attorney General, United States Department of

Justice, Robert B. Nicholson and John P. Fonte, Attorneys,

United States Department of Justice, Ellen D. Hanson, General Counsel, Surface Transportation Board, and Craig M.

Keats, Associate General Counsel, Surface Transportation

Board were on brief. Henri F. Rush, Counsel, Surface

Transportation Board, entered an appearance.

William L. Slover, John H. LeSeur, Christopher A. Mills,

Peter A. Pfohl, Nicholas J. DiMichael, John K. Maser, III.,

Frederic L. Wood, Karyn A. Booth, John M. Cutler, Jr.,

Edward D. Greenberg, David K. Monroe, Andrew P. Goldstein, Martin W. Bercovici, Arthur S. Garrett, II., Michael F.

McBride, Bruce W. Neely, Henry M. Wick, Jr., Vincent P.

Szeligo and William W. Binek were on brief for intervenors

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American Chemistry Council, et al. Michael M. Briley entered an appearance.

Before: Henderson, Rogers and Tatel, Circuit Judges.

Opinion for the court filed by Circuit Judge Henderson.

Karen LeCraft Henderson: The Association of American

Railroads (AAR) and Union Pacific Railroad Company (Union

Pacific) challenge a Surface Transportation Board (STB) rulemaking which altered the Board's guidelines for finding that a

particular rail carrier enjoys "market dominance," a statutory

prerequisite to hearing a railroad rate challenge. Before the

rulemaking the guidelines required that the Board, in making

the market dominance determination, consider both "direct"

competition to the challenged carrier, by shippers that would

carry the same products (whether by rail or otherwise) from

the same location to the same destination, and "indirect"

competition using alternate routes (geographic competition)

or different products (product competition). The challenged

STB decision eliminated consideration of indirect competition.

Petitioner AAR and Union Pacific1 contend that the statutory

definition of "market dominance" in 49 U.S.C. s 10709(a)

requires that the Board consider both direct and indirect

competition.2 Although we reject the petitioners' construction of section 10709(a), we nonetheless remand for the Board

to reconsider its decision in light of the strong language

favoring rail deregulation set out in 49 U.S.C. s 10101(1).

I.

Before 1976 the Interstate Commerce Commission (ICC or

Commission) was charged with examining every railroad shipping rate to ensure that it was "just and reasonable." See 49

U.S.C. s 1(5) (1976). In 1976, however, the Congress enacted

__________

1 The consolidated petitions filed by United Transportation

Union-Illinois Legislative Board in Nos. 00-1047 and 00-1082 were

denied in a judgment issued December 12, 2000.

2 On January 11, 2001 the court granted Union Pacific's motion to

withdraw its additional challenge to the guidelines as impermissibly

retroactive.

the Railroad Revitalization and Regulatory Reform Act, Pub.

L. No. 94-210, 90 Stat. 31 (4R Act), which largely deregulated

railroad rates so that thenceforth the ICC was authorized to

examine a rail carrier's service rate only if it first affirmatively found that the carrier had "market dominance over such

service." Pub. L. No. 94-210, s 202(b), 90 Stat. at 35. The

4R Act expressly directed the ICC to "establish, by rule,

standards and procedures for determining ... whether and

when a carrier possesses market dominance over a service

rendered or to be rendered at a particular rate or rates," such

rules to be "designed to provide for a practical determination

without administrative delay." Id. s 202(d), 90 Stat. at 35.

Pursuant to the Congress's directive, the ICC promulgated

"Special Procedures for Making Findings of Market Dominance," which required that in making the market dominance

determination the ICC consider only "direct" competition

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using the same point of departure and the same destination

by other rail carriers ("intramodal competition") or by nonrail transport ("intermodal competition"). See 353 I.C.C. 874,

modified, 355 I.C.C. 12 (1976). During the rulemaking, the

ICC expressly declined to require consideration of "indirect"

product competition (using a different product subject to a

different rate) or geographic competition (using a different

departure-point or destination). 353 I.C.C. at 904-07. In

Atchison, Topeka & Santa Fe Ry. v. ICC, 580 F.2d 623, 623-

34 (D.C. Cir. 1978), this court upheld the Board's decision to

exclude geographic and product competition.

In early 1980 the ICC proposed a rulemaking to, inter alia,

add indirect competition to its market dominance calculus.

See Ex Parte No. 320 (Sub-No. 1), Rail Market Dominance

and Related Considerations, 45 Fed. Reg. 3353, 3357

(s 1109.1(g)(4)(iv) (Jan. 17, 1980)). While the rulemaking was

pending, the Congress enacted the Staggers Act to further

deregulate rail transport. Pub. L. No. 96-448, 94 Stat. 1895

(1980).3 The Staggers Act retained the requirement of a

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3 Significant to further deregulation, but not to this case, the

Staggers Act established a conclusive presumption of no market

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market dominance finding as a prerequisite to regulation as

well as the existing statutory definition of the term and

directed that the ICC "commence a proceeding for purposes

of determining whether, and to what extent, product competition should be considered ... to determine the reasonableness of rail carrier rates." Id. s 205(a)(1), 94 Stat. at 1905.

The Congress explained, however, that this directive was not

to "be construed as altering the meaning, use, or interpretation by the Commission, the courts, or any party of the term

'market dominance,' as defined in section 10709(a) of title 49,

United States Code." Id. s 205(a)(3)(B), 94 Stat. at 1906.

Following the Congress's directive, the ICC instituted a new

rulemaking and concluded that both product competition and

geographic competition should be considered in making the

market dominance determination.4 Ex Parte No. 320 (SubNo. 2), Market Dominance Determinations and Consideration of Product Competition, 365 I.C.C. 118 (June 24, 1981).

The Fifth Circuit Court of Appeals upheld the Board's determination. See Western Coal Traffic League v. United States,

719 F.2d 772 (5th Cir. 1983) (en banc), cert. denied, 466 U.S.

953 (1984).

In 1995 the Congress enacted the Interstate Commerce

Commission Termination Act, Pub. L. No. 104-88, 109 Stat.

803 (1995), which abolished the ICC and vested in the newly

fashioned STB, inter alia, the ICC's authority to regulate rail

transportation rates. The ICC Termination Act left the

statutory market dominance provisions intact.

On May 5, 1998 the Board published its "Proposal to

Eliminate Product and Geographic Competition From Consideration in Market Dominance Determinations." 63 Fed. Reg.

24,588 (1998). After receiving comments the Board issued a

decision dated July 1, 1999, announcing that geographic and

product competition would no longer be considered in deter-

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dominance when a rate generated revenues below a certain threshold. See Pub. L. No. 96-448, s 202, 94 Stat. 1900.

4 Although the Staggers Act directive mentioned only "product

competition," the statutory definition of the term was "such that it

encompasses geographic competition as well." 365 I.C.C. at 127.

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mining market dominance. Ex Parte No. 627, Market Dominance Determinations--Product and Geographic Competition (Dec. 21, 1998) (STB Dec.). The Board reasoned that

the statute does not itself require their consideration and that

the Board "can more expeditiously, efficiently and effectively

carry out [its] mandated functions by limiting the market

dominance inquiry to the scope expressly required by the

statute." STB Dec. at 10, 12. The Board noted that "the

time and resources" spent on indirect competition evidence

and analysis, by both the parties and the Board, "can be

inordinate." Id. at 12. The Board also determined the

change would benefit shippers, which would not be so reluctant to challenge rates if they did not have to litigate product

and geographic competition, and that it would not substantially injure rail carriers, which, once a rate was challenged,

could still rely on indirect competition to establish the rate's

reasonableness. Id. at 12-14. AAR and Union Pacific petitioned for reconsideration which the Board denied on July 19,

1999. Ex Parte No. 627, Market Dominance Determinations--Product and Geographic Competition (1999) (Reconsideration Denial).

II.

The petitioners first contend that the statutory definition of

"market dominance" in section 10709(a) requires the Board to

consider indirect product and geographic competition in determining market dominance. We disagree.

The result of the statutory evolution outlined above is that

now "a rail carrier providing transportation subject to the

jurisdiction of the Board ... may establish any rate for

transportation or other service provided by the rail carrier"

"[e]xcept as provided in subsection (d) of [49 U.S.C. s 10701]

and unless a rate is prohibited by a provision of [part A of

Subtitle iv of title 49]". 49 U.S.C. s 10701(c). The subsection (d) exception provides: "If the Board determines, under

section 10707 of this title, that a rail carrier has market

dominance over the transportation to which a particular rate

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portation must be reasonable." Id. s 10701(d)(1). Section

10707, in turn, provides that if a rate is challenged, "the

Board shall determine whether the rail carrier proposing the

rate has market dominance over the transportation to which

the rate applies," 49 U.S.C. s 10707(b), and "[w]hen the

Board finds in any proceeding that a rail carrier proposing or

defending a rate for transportation has market dominance

over the transportation to which the rate applies, it may then

determine that rate to be unreasonable if it exceeds a reasonable maximum for that transportation," id. s 10707(c). Finally, and most significantly here, section 10709(a) defines

"market dominance" to "mean[ ] an absence of effective competition from other rail carriers or modes of transportation

for the transportation to which a rate applies." Id.

s 10709(a). The meaning of the word "competition" is the

heart of this dispute.

The petitioners maintain that "competition" means all competition, whether direct or indirect. The Board, on the other

hand, construed the term to mean only direct competition

because the statutory language mentions only "competition

from other rail carriers or modes of transportation for the

transportation to which a rate applies," that is, competition

"for moving the same product between the same origin and

destination points." STB Dec. at 10. We conclude the

Board's interpretation comports with section 10709(a)'s definition.

In Atchison the ICC advanced, and we endorsed, the same

construction of the definition the Board adopted below.

There we explained:

The Act defines "market dominance" as the "absence of

effective competition from other carriers or modes of

transportation, for the traffic or movement to which a

rate applies...." Section 202(b) of the Act, 49 U.S.C.

s 1(5)(c)(i). As a matter of strict logic, the phrase "for

the traffic or movement to which a rate applies" would

seem to exclude from consideration competition that

manifests itself in the form of "traffic" or "movement"

other than that to which the rate in question applies.

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Shipment of a product to another geographical location,

or shipment of a different product, would certainly appear to involve "traffic" or "movement" other than that

to which the rate applies. This is essentially the statutory argument advanced by the Commission. Interim

Report at 54, J.A. 778. The construction may appear to

some as an attempt to attribute excessive significance to

a terse statutory clause. But we cannot say that it is an

unreasonable reading, particularly in light of the clear

emphasis placed by the Act upon efficiency and practicality.... The Commission's reading of the statutory definition of market dominance insures that the highly complex issues of geographic and product competition will

not create delay in the determination of market dominance, even in the rebuttal stage of the proceeding. We

believe there is sufficient basis in the statutory language

and purpose to merit our deferral to the Commission's

view.

580 F.2d at 634. But see Western Coal Traffic League, 719

F.2d at 772 n.10 (reviewing the same interpretation, court

stated it was "hesitant to rely heavily upon a vague congressional use of prepositions in determining the extent of the

ICC's jurisdiction to review rail rates"). Since Atchison, the

Congress altered slightly the language of the statutory definition, substituting the word "transportation" for the phrase

"traffic or movement," see Pub. L. No. 95-473, 92 Stat. 1337,

1382 (1978) [10706], but the change does not affect the

reasonableness of the Board's interpretation.5 The language

may still be read to refer only to direct competition--which is,

technically, the only competition for the particular transportation (of a single commodity by a single route) to which a

specific rate applies. Further, the court's prediction in Atchison that this reading would prevent administrative delay,

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5 The change occurred in a statutory recodification intended to be

effected "without substantive change." Pub. L. No. 95-473, 92 Stat.

1337, 1337. Before the recodification the 4R Act defined "market

dominance" as "an absence of effective competition from other

carriers or modes of transportation, for the traffic or movement to

which a rate applies." Atchison, 580 F.2d at 627.

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which would inevitably result from litigating "the highly

complex issues of geographic and product competition," has

been confirmed by the Commission's and the Board's experience since the guidelines were changed to include indirect

competition in 1981. See Board Dec. at 10-11 (describing,

with examples, extensive discovery generated in litigating

product and geographic competition costs). Thus, the

Board's construction of the statutory definition furthers its

statutory mandate to "establish procedures to ensure expeditious handling of challenges to the reasonableness of railroad

rates" which "procedures shall include appropriate measures

for avoiding delay in the discovery and evidentiary phases of

such proceedings." 49 U.S.C. s 10704(d). For these reasons,

we conclude the Board's interpretation of section 10709(a)'s

definition is reasonable and, considered in isolation, permissible. See Western Coal Traffic League v. STB, 216 F.3d 1168

(D.C. Cir. 2000) (court will "defer to the Board's interpretation of the statute so long as it is 'based on a permissible

construction of the statute' ") (quoting Chevron U.S.A. Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837, 843

(1984)). Nevertheless, our review does not end there.

The petitioners contend it was arbitrary and capricious for

the Board to construe section 10709(a) as it did without

considering the policy set out in the Staggers Act preamble.

We agree. The preamble states:

In regulating the railroad industry, it is the policy of the

United States Government--

(1) to allow, to the maximum extent possible, competition and the demand for services to establish reasonable

rates for transportation by rail

....

49 U.S.C. s 10101(1) (emphasis added). The italicized language, so forcefully expressed, manifests a preference for

market-based rather than regulatory rate setting. Yet the

Board did not address this important language in either its

initial decision or its decision on reconsideration, as it ought

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to have done.6 See Wyoming Outdoor Council v. United

States Forest Serv., 165 F.3d 43, 53 (D.C. Cir. 1999) ("[A]lthough the language in the preamble of a statute is 'not an

operative part of the statute,' it may aid in achieving a

'general understanding' of the statute.") (quoting Association

of Am. R.Rs. v. Costle, 562 F.2d 1310, 1316 (D.C. Cir. 1977));

see also Chesapeake & Ohio Ry. v. United States, 704 F.2d

373, 375-76 (7th Cir. 1983) ("[T]he national transportation

policy for railroads, 49 U.S.C. s 10101a [now s 10101], ... is

to guide the Commission in applying the rail provisions of the

Interstate Commerce Act."). Accordingly we remand this

case to the Board to weigh the effect, if any, the quoted

preamble language has on the statutory definition of market

dominance set out in 49 U.S.C. s 10709(a).

So ordered.

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6 The Board simply referred to "the statutory policy favoring

reliance on market-set rates." See Reconsideration Denial at 9-10.

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