United States Court of Appeals

For the Eighth Circuit

___________________________

No. 22-3648

___________________________

Union Pacific Railroad Co.

lllllllllllllllllllllPetitioner

v.

Surface Transportation Board; United States of America

lllllllllllllllllllllRespondents

American Chemistry Council; Corn Refiners Association; National Grain and

Feed Association; National Industrial Transportation League; The Fertilizer Institute

lllllllllllllllllllllIntervenors

------------------------------

Washington Legal Foundation

lllllllllllllllllllllAmicus on Behalf of Petitioner

 ___________________________

No. 23-1325

___________________________

 Association of American Railroads

lllllllllllllllllllllPetitioner

v.
Surface Transportation Board; United States of America

lllllllllllllllllllllRespondents

------------------------------

Washington Legal Foundation

lllllllllllllllllllllAmicus on Behalf of Petitioner

 ____________

Petition for Review of an Order of the

 Surface Transportation Board

 ____________

 Submitted: December 13, 2023

Filed: August 20, 2024

____________

Before SMITH, Chief Judge,1 GRUENDER and GRASZ, Circuit Judges. 

____________

SMITH, Chief Judge. 

Congress has charged the Surface Transportation Board (Board) with resolving

rate disputes between rail carriers and shippers when rates are not set by private

contract. See 49 U.S.C. §§ 10704(a)(1), 10709(c)(1). In the Surface Transportation

Board Reauthorization Act of 2015, Congress directed the Board to “maintain 1 or

more simplified and expedited methods for determining the reasonableness of

challenged [rail carrier] rates in those cases in which a full stand-alone cost

1

Judge Smith completed his term as chief judge of the circuit on March 10,

2024. See 28 U.S.C. § 45(a)(3)(A).

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presentation is too costly, given the value of the case.” 49 U.S.C. § 10701(d)(3).

These petitions for review challenge the Board’s adoption of a final rule to establish

a new procedure for challenging the reasonableness of rail carrier rates in smaller

cases, the Final Offer Rate Review (FORR). Under FORR, the Board decides a case

by selecting either the shipper’s or the rail carrier’s final offer. Union Pacific Railroad

Company and the Association of American Railroads (collectively, “petitioners”)

challenge FORR on three grounds: (1) the Board lacks statutory authority to

implement this procedure; (2) FORR is unconstitutionally vague because parties lack

fair notice of the methodology the Board will use to decide cases; and (3) FORR is

arbitrary and capricious. For the reasons stated below, we grant the petitions for

review. 

I. Background

A. Statutory Overview

The Board resolves rate disputes between rail carriers and shippers when rates

are not set by private contract. See 49 U.S.C. §§ 10704(a)(1), 10709(c)(1). “The

Board may begin a proceeding . . . only on complaint.” Id. § 10704(b). In deciding a

rate dispute, the Board must first find that “a rail carrier has market dominance over

the transportation to which a particular rate applies.” Id. § 10701(d)(1); see also id.

§ 10707(b)–(c). A “rail carrier . . . does not have market dominance . . . if . . . the rate

charged results in a revenue-variable cost percentage for such transportation that is

less than 180 percent.” Id. § 10707(d)(1)(A). 

If the rail carrier has market dominance, then the Board must next determine

whether “the rate established by such carrier for such transportation [is] reasonable.”

Id. § 10701(d)(1); see also id. § 10707(c) (“When 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

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transportation.”). The Board must hold a “full hearing” before determining a rate’s

reasonableness. Id. § 10704(a)(1). The Board must determine the rate that the rail

carrier actually “charged or collected.” Id. It is required to “give due consideration

to,” id. § 10701(d)(2), the three Long-Cannon2 factors in assessing a rate’s

reasonableness. These factors are:

(A) the amount of traffic which is transported at revenues

which do not contribute to going concern value and the

efforts made to minimize such traffic;

(B) the amount of traffic which contributes only marginally

to fixed costs and the extent to which, if any, rates on such

traffic can be changed to maximize the revenues from such

traffic; and

(C) the carrier’s mix of rail traffic to determine whether

one commodity is paying an unreasonable share of the

carrier’s overall revenues,

recognizing the policy of this part that rail carriers shall earn adequate

revenues, as established by the Board under section 10704(a)(2) of this

title.

Id. § 10701(d)(2)(A)–(C). 

Finally, if the Board finds that the rail carrier’s rate is unreasonable, “the Board

may prescribe the maximum rate, classification, rule, or practice to be followed. The

Board may order the carrier to stop the violation.” Id. § 10704(a)(1). In setting that

rate, the Board must 

2

See Potomac Elec. Power Co. v. ICC, 744 F.2d 185, 188 (D.C. Cir. 1984)

(explaining that, in passing the Long-Cannon Amendment, Congress required the

Commission to consider these three factors). 

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maintain and revise as necessary standards and procedures for

establishing revenue levels for rail carriers providing transportation

subject to its jurisdiction under this part that are adequate, under honest,

economical, and efficient management, for the infrastructure and

investment needed to meet the present and future demand for rail

services and to cover total operating expenses, including depreciation

and obsolescence, plus a reasonable and economic profit or return (or

both) on capital employed in the business. The Board shall make an

adequate and continuing effort to assist those carriers in attaining

revenue levels prescribed under this paragraph. Revenue levels

established under this paragraph should— 

(A) provide a flow of net income plus depreciation

adequate to support prudent capital outlays, assure the

repayment of a reasonable level of debt, permit the raising

of needed equity capital, and cover the effects of inflation;

and

(B) attract and retain capital in amounts adequate to

provide a sound transportation system in the United States.

Id. § 10704(a)(2)(A)–(B). 

B. Methodologies for Determining a Rate’s Reasonableness

In determining a rate’s reasonableness, “almost all rate cases have proceeded

under the Stand-Alone Cost test, sometimes referred to as the ‘SAC test.’” CSX

Transp., Inc. v. Surface Transp. Bd., 754 F.3d 1056, 1059 (D.C. Cir. 2014). This test

requires the “complainants [to] design a hypothetical stand-alone railroad, sometimes

referred to as an ‘SARR,’ which is ‘a fully efficient hypothetical competitor railroad

that serves the complaining shipper and other traffic sharing common facilities.’” Id.

at 1059–60 (quoting CSX Transp., Inc. v. Surface Transp. Bd., 568 F.3d 236, 238

(D.C. Cir.), opinion vacated in part on reh’g, 584 F.3d 1076 (D.C. Cir. 2009)). “[I]f

the stand-alone railroad would generate revenues that ‘exceed[] the costs (including

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a reasonable profit) of running the stand-alone railroad,’” then “[t]he Board will find

a challenged rate unreasonable.” Id. at 1060 (second alteration in original) (quoting

CSX Transp., 568 F.3d at 238–39). 

1. Three-Benchmark Methodology

“SAC tests are complicated and costly . . . .” Id. As a result, Congress has

required the Board to “maintain 1 or more simplified and expedited methods for

determining the reasonableness of challenged rates” in cases involving smaller

disputes with a rail carrier. 49 U.S.C. § 10701(d)(3). In response to Congress, the

Board has adopted simplified methodologies for determining reasonableness.

Pertinent to this case, the Board adopted the Three-Benchmark methodology, “which

determines the reasonableness of a challenged rate using three benchmark figures.”

Final Offer Rate Review; Expanding Access to Rate Relief, 88 Fed. Reg. 299, 300

(Jan. 4, 2023) (Final rule) (codified at 49 C.F.R. pts. 1002, 1111, 1114, and 1115)

(citing Rate Guidelines—Non-Coal Procs., 1 S.T.B. 1004 (1996), pet. to reopen

denied, 2 S.T.B. 619 (1997), appeal dismissed sub nom. Ass’n of Am. R.Rs. v. STB,

146 F.3d 942 (D.C. Cir. 1998)). The Board’s current Three-Benchmark methodology

includes a final offer procedure more commonly used “in commercial settings,

including the resolution of wage disputes in Major League Baseball,” to streamline

the process of reaching an acceptable arrangement. Id. at 301.

In addition to modifying the Three-Benchmark methodology over the years, the

Board has “also created another simplified methodology, known as Simplifed-SAC,

which determines whether a captive shipper is being forced to cross-subsidize other

parts of the railroad’s network.” Id. at 300 (citing Simplified Standards for Rail Rate

Cases, EP 646 (Sub-No. 1) (STB served Sept. 5, 2007), aff’d sub nom. CSX Transp.,

568 F.3d 236).

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2. Final Offer Rate Review (FORR)

“Notwithstanding the Board’s efforts to improve its rate review methodologies

and make them more accessible, only a few Three-Benchmark cases have ever been

brought to the Board, and no complaint has been litigated to completion under the

Simplified-SAC methodology.” Id. at 300. As a result, the Board “adopt[ed] a final

rule . . . to establish a new procedure for challenging the reasonableness of railroad

rates in smaller cases.” Id. at 299. This procedure, known as FORR, permits the

Board to “decide a case by selecting either the complainant’s or the defendant’s final

offer, subject to an expedited procedural schedule that adheres to firm deadlines.” Id.

In justifying FORR’s adoption, the Board cited “[t]he benefits of final offer

procedures used in other settings [to] offer support and background for [FORR].” Id.

at 301 (citing Josh Chetwynd, Play Ball? An Analysis of Final-Offer Arb., Its Use in

Major League Baseball, & Its Potential Applicability to Eur. Football Wage &

Transfer Disps., 20 Marq. Sports L. Rev. 109 (2009) (noting the final offer procedure

“can lead to a win-win situation as it spurs negotiated settlement at a very high rate”);

Michael Carrell & Richard Bales, Considering Final Offer Arb. to Resolve Pub.

Sector Impasses in Times of Concession Bargaining, 28 Ohio St. J. on Disp. Resol.

1, 3, 16, 23–24 (2012) (noting that 14 states had codified some form of final offer

arbitration for certain labor disputes involving public sector employees and noting

that the procedure “encourages the parties to negotiate toward middle ground rather

than staking out polar positions” and “encourages the parties to settle before

arbitration”)). 

Under FORR, the shipper initiates the case by filing a notice of intent and

serving notice on the rail carrier. Id. at 318; see also 49 C.F.R. § 1111.10(a)(3)(i)(A),

(a)(3)(ii)(A). Once the complaint is filed, “discovery begins.” 88 Fed. Reg. at 318; 

see also 49 C.F.R. § 1111.10(a)(3)(i)(B), (a)(3)(ii)(B). Following discovery, the

shipper and rail carrier submit simultaneous reasonableness analyses and final offers,

while the shipper (but not the rail carrier) submits “opening evidence on market

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dominance.” 88 Fed. Reg. at 318; see also 49 C.F.R. § 1111.10(a)(3)(i)(D),

(a)(3)(ii)(D). In submitting their final offers, the parties “must submit an explanation

of the methodology . . . used.” 88 Fed. Reg. at 318; see also 49 C.F.R.

§ 1111.10(a)(3)(v).3 The parties next file their simultaneous replies. In the reply, the

rail carrier includes “reply evidence on market dominance.” 88 Fed. Reg. at 318; see

also 49 C.F.R. § 1111.10(a)(3)(i)(E), (a)(3)(ii)(E). As the complainant, the shipper

“bear[s] the burden of proof to demonstrate that (i) the defendant carrier has market

dominance over the transportation to which the rate applies, and (ii) the challenged

rate is unreasonable.” 88 Fed. Reg. at 302 (citing, in part, 49 U.S.C. §§ 10701(d)(1),

10704(a)(1), 11704(b)). 

Following briefing, the Board renders its decision. Id. at 318; see also 49

C.F.R. §1111.10(a)(3)(i)(H), (a)(3)(ii)(F).4 Upon finding that the shipper’s “market

dominance presentation and rate reasonableness analysis demonstrate that the

defendant carrier has market dominance over the transportation to which the rate

applies and that the challenged rate is unreasonable, the Board . . . then choose[s]

between the parties’ final offers.” 88 Fed. Reg. at 302. In choosing between the

3

“FORR does not prescribe a particular methodology . . . .” Final Offer Rate

Review; Expanding Access to Rate Relief, 84 Fed. Reg. 48,872, 48,878 (Sept. 17,

2019) (Notice of proposed rulemaking; request for comments) (codified at 49 C.F.R.

pts. 1002, 1111, 1114, and 1115). Instead, “the Board expects that . . . the rail

transportation policy [(RTP)], the Long-Cannon factors, and appropriate economic

principles . . . allow for the parties to submit final offers using their preferred

methodologies, including revised versions of the Board’s existing rate review

methodologies or new methodologies altogether.” Id. at 48,876.

4

In cases in which the shipper “elects streamlined market dominance,” the

shipper notifies via letter “the Board whether it elects an evidentiary hearing on

market dominance” and then a “[t]elephonic evidentiary hearing [is held] before an

administrative law judge . . . at the discretion of the [shipper]” prior to the Board’s

decision. 88 Fed. Reg. at 318; see also 49 C.F.R. § 1111.10(a)(3)(i)(F)–(G).

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parties’ final offers, “[t]he Board . . . take[s] into account . . . the RTP, the LongCannon factors in 49 U.S.C. [§] 10701(d)(2), and appropriate economic principles.”

Id. The Board’s selection of a final offer “would be an ‘either/or’ selection, with no

modifications by the Board.” 84 Fed. Reg. at 48,877. The Board “would not attempt

to find a compromise position.” Id. “If a party adopts a position that is contrary to

the[] guiding criteria, it risks the likelihood that the Board would choose the other

party’s offer.” Id. at 48,876. “If [the shipper] fails to submit explanation and support

for its offer, the Board may dismiss the complaint without determining the

reasonableness of the challenged rate.” 88 Fed. Reg. at 318; see also 49 C.F.R.

§ 1111.10(a)(3)(v). 

After “find[ing] that the defendant carrier has market dominance, find[ing] the

challenged rate unreasonable, and choos[ing] the complainant’s offer (or the

defendant’s offer, if it is below the challenged rate),” the Board may “award relief

based on the difference between the challenged rate and the rate in that offer.” 84

Fed. Reg. at 48,877.

When the Board adopted FORR as a final rule, two of the five Board members

dissented. 88 Fed. Reg. at 314–17. Board Member Patrick J. Fuchs concluded that

“FORR is an evasion of the Board’s fundamental responsibility because it makes the

Board entirely dependent on litigants’ self-determined rate review methodologies,

gives little meaningful guidance for those methodologies, and prohibits the Board

from devising its own remedy where necessary.” Id. at 314. In his view, “FORR

reduces the agency to mere passive, all-or-nothing selections based only on litigants’

methodologies and proposed remedies. In FORR, the Board does not set its own

methodology that gives clear, specific meaning to the statutory criteria . . . .” Id.

Board Member Fuchs rejected the Board’s attempt to compare FORR to the

Three-Benchmark methodology’s use of “a final offer process for picking comparison

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groups.” Id. He explained that “when [the Board] established Three-Benchmark, [it]

exercised considerable discretion to guard the public interest and give specific

meaning to statutory criteria—based on its own expertise and judgement—by, among

other things, defining a formula that accounts for the level of revenue adequacy to be

achieved through a rail carrier’s rate-setting.” Id. FORR, however, “offers little useful

guidance, let alone a methodology, on fundamental concepts like revenue adequacy

and differential pricing.” Id. Board Member Fuchs concluded that “FORR is unique

among the agency’s processes in that the Board evades responsibility on both the

front and back ends—neither defining methodologies in advance nor permitting the

Board’s own remedies in individual cases.” Id.

Board Member Michelle A. Schultz also dissented. She expressed her “deep

legal and practical concerns about FORR, which [she] believe[d] prevents the Board

from engaging in reasoned decision-making, fails to properly align risk between

complainants and defendants, and could depress rail rates below what is reasonable.”

Id. at 316. She opined that “FORR would require the Board to choose between two

rates—even if the Board finds the correct outcome falls above, below, or somewhere

in between the two submissions.” Id. “[T]his limitation on the Board’s ability to

exercise its own judgment by weighing each side’s arguments, evaluating the

evidence, and considering both the public interest and rail transportation policy”

“troubl[ed]” Board Member Schultz. Id. She explained that “the Board’s

congressionally authorized responsibility to provide regulatory oversight of rates

requires more than a reliance upon two submitted proposals. It requires the Board to

actually exercise its discretion and decision-making authority.” Id. at 317. 

II. Discussion

These petitions for review challenge the Board’s final rule adopting FORR and

request vacatur of that rule. First, the petitioners argue that the Board lacks statutory

authority to “prescribe railroad rates through [FORR,] a baseball arbitration scheme.”

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Pet’rs’ Br. at 13. Second, the petitioners assert that “FORR is unconstitutionally

vague” because rail carriers “do not know how the Board will determine what is

‘reasonable’ in any given case” considering “[t]he Board’s refusal to establish a

governing methodology in advance, or to provide any ascertainable standard for how

it will make reasonableness determinations.” Id. at 14. Finally, the petitioners contend

that “[t]he final rule adopting FORR is arbitrary and capricious” because it “prevents

the Board from engaging in reasoned decisionmaking [by] . . . prohibit[ing] the Board

from choosing the correct outcome, unless one of the parties just happens to propose

it.” Id. at 15. 

Our task is to determine whether Congress statutorily authorized the Board to

prescribe rail carrier rates through a rate-setting scheme like FORR. “Administrative

agencies are creatures of statute. They accordingly possess only the authority that

Congress has provided.” Nat’l Fed’n of Indep. Bus. v. OSHA, 595 U.S. 109, 117

(2022) (per curiam). “Congress . . . enacted the APA [(Administrative Procedure

Act)] as a check upon administrators whose zeal might otherwise have carried them

to excesses not contemplated in legislation creating their offices.” Loper Bright

Enters. v. Raimondo, 144 S. Ct. 2244, 2261 (2024) (internal quotation marks omitted)

(overruling Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984)).

The APA sets forth judicial review of agency action. Id. It “directs that ‘[t]o the

extent necessary to decision and when presented, the reviewing court shall decide all

relevant questions of law, interpret constitutional and statutory provisions, and

determine the meaning or applicability of the terms of an agency action.’” Id.

(quoting 5 U.S.C. § 706). Additionally, under the APA, reviewing courts must “hold

unlawful and set aside agency action, findings, and conclusions found to be . . . not

in accordance with law.” Id. (alteration in original) (quoting 5 U.S.C. § 706(2)(A));

see also Union Pac. R.R. Co. v. Surface Transp. Bd., 863 F.3d 816, 822 (8th Cir.

2017) (“Agency action taken without statutory authority must be set aside.”); United

States ex rel. O’Keefe v. McDonnell Douglas Corp., 132 F.3d 1252, 1257 (8th Cir.

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1998) (“An agency’s promulgation of rules without valid statutory authority

implicates core notions of the separation of powers, and we are required by Congress

to set these regulations aside.”). The APA “makes clear that agency interpretations

of statutes . . . are not entitled to deference.” Loper Bright Enters., 144 S. Ct. at 2261.

It is our responsibility as the reviewing court “to decide whether the law means what

the agency says.” Id. (internal quotation marks omitted).

Thus, in determining “whether an agency has acted within its statutory

authority, as the APA requires,” we “must exercise [our] independent judgment.” Id.

at 2273. “When interpreting a statute, we begin with the statute’s plain language,

giving words the meaning that proper grammar and usage would assign them. If the

intent of Congress can be clearly discerned from the statute’s language, the judicial

inquiry must end.” United States v. Lester, 92 F.4th 740, 742 (8th Cir. 2024) (cleaned

up). If confronted with a statutory ambiguity, we must “independently interpret the

statute.” Loper, 144 S. Ct. at 2266. In exercising our “independent judgment,” we

“may . . . seek aid from the interpretations of those responsible for implementing

particular statutes. Such interpretations constitute a body of experience and informed

judgment to which courts and litigants may properly resort for guidance consistent

with the APA.” Id. at 2262 (internal quotation marks omitted); see also id. at 2273

(“Careful attention to the judgment of the Executive Branch may help inform that

inquiry.”). We must “use every tool at [our] disposal to determine the best reading of

the statute and resolve [any] ambiguity.” Id. at 2266.

We begin with the statute’s plain language. The Board claims that 49 U.S.C.

§ 10704(a)(1) provides the statutory authority to prescribe rail carrier rates through

FORR. Section 10704(a)(1) provides:

When the Board, after a full hearing, decides that a rate charged or

collected by a rail carrier for transportation subject to the jurisdiction of

the Board under this part, or that a classification, rule, or practice of that

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carrier, does or will violate [Part A, Subtitle IV of Title 49], the Board

may prescribe the maximum rate, classification, rule, or practice to be

followed.

(Emphases added.) In turn, Part A provides that “[i]f the Board determines, under [49

U.S.C. §] 10707[5] . . . , that a rail carrier has market dominance over the

transportation to which a particular rate applies, the rate established by such carrier

for such transportation must be reasonable.” Id. § 10701(d)(1); see also BNSF Ry. Co.

v. Surface Transp. Bd., 526 F.3d 770, 773 (D.C. Cir. 2008) (Kavanaugh, J.) (“After

the Board determines that it has jurisdiction over a challenged rate, the Board must

decide whether the rate is reasonable.” (citing 49 U.S.C. § 10701(d)(1)). Congress

requires the Board to “maintain 1 or more simplified and expedited methods for

determining the reasonableness of challenged rates” in cases involving smaller

disputes with a rail carrier. 49 U.S.C. § 10701(d)(3). The Board determines whether

the challenged rate is reasonable by “giv[ing] due consideration to” the Long-Cannon

factors, “recognizing the policy of [Part A, Subtitle IV of Title 49] that rail carriers

shall earn adequate revenues, as established by the Board under section 10704(a)(2)

of [Title 49].” Id. § 10701(d)(2)(A)–(C); see also id. § 10704(a)(2).6 “If the Board

5Section 10707(c) provides:

When 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. However, a finding of market dominance does not

establish a presumption that the proposed rate exceeds a reasonable

maximum.

6Section 10704(a)(2) provides, in relevant part:

Revenue levels established under this paragraph should—

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finds the rate unreasonable, it sets the maximum rate the railroad may charge. In

setting that rate, the Board must permit the railroad to cover its costs ‘plus a

reasonable and economic profit or return (or both) on capital employed in the

business.’” BNSF Ry. Co., 526 F.3d at 773 (emphasis added) (first citing 49 U.S.C.

§ 10704(a)(1), then quoting 49 U.S.C. § 10704(a)(2)).

Is FORR consistent with the Board’s statutory obligations? We hold that it is

not because some of FORR’s requirements conflict with the Board’s statutory duties. 

Section 10704(a)(1) requires the Board to hold a “full hearing” before determining

a rate’s reasonableness. The threshold question we must answer is whether this “full

hearing” is an adjudication to which the APA applies; if so, then certain procedural

protections apply. “The APA itself mandates that its provisions govern certain

administrative proceedings.” Portland Audubon Soc. v. Endangered Species Comm.,

984 F.2d 1534, 1540 (9th Cir. 1993) (citing Marathon Oil Co. v. EPA, 564 F.2d 1253,

1261–64 (9th Cir. 1977); City of W. Chic. v. U.S. Nuclear Regul. Comm’n, 701 F.2d

632, 641 (7th Cir. 1983) (collecting cases)). Section 554 of the APA “pertains to

formal adjudications”; it “applies to ‘every case of adjudication required by statute

to be determined on the record after [the] opportunity for an agency hearing.’” Id.

(alteration in original) (quoting 5 U.S.C. § 554(a); Girard v. Klopfenstein, 930 F.2d

738, 741 (9th Cir. 1991)). Section 554(a) further “provides that any hearing

conducted and any decision made in connection with such an adjudication shall be

‘in accordance with sections 556 and 557 of this title.’” Id. (quoting 5 U.S.C.

(A) provide a flow of net income plus depreciation

adequate to support prudent capital outlays, assure the

repayment of a reasonable level of debt, permit the raising

of needed equity capital, and cover the effects of inflation;

and

(B) attract and retain capital in amounts adequate to

provide a sound transportation system in the United States.

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§ 554(c)(2)). “In other words, by virtue of the terms of APA § 554, sections 556 and

557 are applicable whenever that section applies.” Id. Thus, all of these sections apply

“whenever the three requirements set forth in APA § 554(a) are satisfied: The

administrative proceeding must be 1) an adjudication; 2) determined on the record;

and 3) after the opportunity for an agency hearing.” Id.; see also Marathon Oil, 564

F.2d at 1262 (“[S]ections 554, 556, and 557 of the APA . . apply to adjudications

‘required by statute to be determined on the record after opportunity for an agency

hearing.’” (quoting 5 U.S.C. § 554(a)). We will now examine whether these

requirements are satisfied in the present case. 

“The APA defines ‘adjudication’ broadly as an agency process leading to a

final disposition ‘other than rulemaking.’” Marathon Oil, 564 F.2d at 1263 (quoting

5 U.S.C. § 551(6)–(7)). “In setting out procedures that an agency must follow in

making ‘adjudicatory’ determinations, Congress recognized that certain

administrative decisions closely resemble judicial determinations and, in the interest

of fairness, require similar procedural protections.” Id. at 1261. “Where an agency’s

task is ‘to adjudicate disputed facts in particular cases,’ an administrative

determination is quasi-judicial.’” Portland Audubon Soc., 984 F.2d at 1540 (quoting 

Marathon Oil, 564 F.2d at 1262). As in “judicial proceedings, the ultimate decision

often turns, in large part, on sharply-disputed factual issues. As a result, . . . APA

procedures . . . are needed both for the protection of affected parties and to help

achieve reasoned decisionmaking.” Marathon Oil, 564 F.2d at 1261.

“At the opposite end of the pole are agency determinations that depend less on

the resolution of factual disputes and more on the drawing of policy; such

‘rulemaking’ decisions must by necessity be guided by more informal procedures.”

Id. (footnote omitted). “[R]ulemaking concerns policy judgments to be applied

generally in cases that may arise in the future . . . .” Portland Audubon Soc., 984 F.2d

at 1540. The APA’s procedural protections are not necessary in proceedings

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conducted “for the purpose of promulgating policy-type rules or standards.”

Marathon Oil, 564 F.2d at 1262 (internal quotation marks omitted).7

“We conclude that the first requirement of APA § 554(a) is satisfied.” Portland

Audubon Soc., 984 F.2d at 1540. The Board is tasked with resolving rate disputes

between rail carriers and shippers. See 49 U.S.C. §§ 10704(a)(1), 10709(c)(1). In

determining whether “the rate established by such carrier for such transportation [is]

reasonable,” id. § 10701(d)(1), the Board is statutorily required to hold a “full

hearing,” id. § 10704(a)(1). In assessing a rate’s reasonableness, the Board is also

statutorily required to “give due consideration to,” id. § 10701(d)(2), the three LongCannon factors. Assessing the reasonableness of a rail carrier’s rate requires the

Board “to weigh the many factors at issue.” BNSF Ry. Co., 526 F.3d at 774. In other

words, the Board must weigh the statutory factors to resolve the parties’ factual

dispute over the reasonableness of the challenged rate. Cf. Portland Audubon Soc.,

984 F.2d at 1540 (“Under the Endangered Species Act the Committee decides

whether to grant or deny specific requests for exemptions based upon specific factual

showings.”). 

As to the second § 554(a) requirement, “[a]lthough Section 554 specifies that

the governing statute must satisfy the ‘on the record’ requirement, those three magic

words need not appear for a court to determine that formal hearings are required.”

Lane v. USDA, 120 F.3d 106, 108–09 (8th Cir. 1997) (quoting City of W. Chic., 701

F.2d at 641). For the APA’s “formal, on-the-record hearing provisions” to apply,

“Congress need only ‘clearly indicate its intent to trigger’” them. Id. (quoting City of

W. Chic., 701 F.2d at 641). Application of the procedural safeguards “rests on the

7Also “exclude[d] from the residual definition of adjudication [are]

governmental functions, such as the administration of loan programs, which

traditionally have never been regarded as adjudicative in nature and as a rule have

never been exercised through other than business procedures.” Id. at 1263 (internal

quotation marks omitted). 

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substantive character of the proceedings involved,” “[a]bsent congressional intent to

the contrary.” Marathon Oil, 564 F.2d at 1263. “In summary, the crucial question is

not whether particular talismanic language was used but whether the proceedings

under review fall within that category of quasi-judicial proceedings deserving of

special procedural protections.” Id. at 1264. A court’s inquiry must be focused “on

the nature of the administrative determination before [it].” Id.

We conclude that the second requirement of APA § 554(a) is satisfied.

Although § 10704(a)(1) does not contain the “three magic words” of “on the record,”

those words are not needed for us to determine that the APA’s procedural protections

apply. Lane, 120 F.3d at 108. Section 10704(a)(1) does require the Board to hold a

“full hearing.” When adjudicating the rate dispute between the shipper and rail

carrier, the Board is not engaging in rulemaking but instead is engaging in “an agency

process leading to a final disposition” of the parties’ rate dispute. Marathon Oil, 564

F.2d at 1263. 

As to the third § 554(a) requirement, “[w]herever the outer bounds of the ‘after

opportunity for an agency hearing’ requirement may lie, . . . where . . . a statute

provides that an adjudication be determined at least in part based on an agency

hearing, that requirement is fulfilled.’” Portland Audubon Soc., 984 F.2d at 1541.

“The failure of Congress to provide for any hearing whatsoever within an

administrative process may well be a valid indication that Congress either did not feel

that it was providing for an ‘adjudication’ in the traditional sense of the word or did

not intend the APA procedures to apply.” Marathon Oil, 564 F.2d at 1263. But when

“a statute provides for a hearing, similar weight should not typically be accorded to

Congress’[s] failure to specify that determinations must be made ‘on the record.’” Id.

We conclude that this third requirement is satisfied. Under § 10704(a)(1), the Board

is statutorily authorized to “prescribe the maximum rate” “after a full hearing” on the

rate’s reasonableness. Cf. Portland Audubon Soc., 984 F.2d at 1541 (concluding third

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requirement was satisfied because the Endangered Species Act “requires that the

[agency’s] final decision be ‘based on the report of the Secretary, [the record of] the

hearing held under (g)(4) of this section . . . and on such other testimony or evidence

as it may receive’” (quoting 16 U.S.C. § 1536(h)(1)(A))). 

Having determined that the requirements set forth in § 554(a) are satisfied, we

must examine whether FORR complies with the APA’s procedural requirements. See 

Marathon Oil, 564 F.2d at 1262 (if proceeding is adjudicatory in nature, it requires

the special protections of APA sections 554, 556, and 557). We focus on the APA’s

requirement that, “[e]xcept as otherwise provided by statute, the proponent of a rule

or order has the burden of proof.” 5 U.S.C. § 556(d).8 The APA does not define

8

In its notice of proposed rule making, the Board recognized the APA as the

source of its allocation of the burden of proof to the shipper to prove market

dominance and unreasonableness. 84 Fed. Reg. at 48,877 (citing 5 U.S.C. § 556(d)).

In the final rule, however, the Board rejected § 556(d) “as the source of burden

allocation.” 88 Fed. Reg. at 306. The Board acknowledged that it had previously

“relied on section 556(d) as the source of burden allocation in Board adjudications.”

Id. It further recognized that, in those cases, the Board “correctly assigned the burden

of proof to parties seeking relief, based on Board precedent establishing such a

burden allocation.” Id. The Board concluded that this “precedent will continue to

apply as a general matter in Board proceedings.” Id. But, “[o]n further reflection,

. . . the Board conclude[d] that some of its previous decisions incorrectly identified

section 556(d)—rather than Board precedent itself—as the source of that burden

allocation.” Id. The Board determined that § 556(d) applies only “to formal ‘trialtype’ hearings, which do not include the Board’s rate reasonableness proceedings.”

Id. (citing Final Offer Rate Review; Expanding Access to Rate Relief, 2021 WL

5327977, at *16 (Nov. 12, 2021) (Supplemental notice of proposed rulemaking)

(codified at 49 C.F.R. pts. 1002, 1111, 1114, and 1115); R.R. Comm’n of Tex. v.

United States, 765 F.2d 221, 227 (D.C. Cir. 1985) (stating formal adjudication

procedures will “obtain only on the requirement of a ‘hearing on the record’”)). The

Board further concluded that “precedent clearly establishes that the burden allocation

language of section 556(d), in particular, does not apply outside formal ‘trial-type’

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“burden of proof”; however, the Supreme Court has interpreted the APA’s use of “the

term ‘burden of proof’ to mean the burden of persuasion.” Dir., Off. of Workers’

Comp. Programs, Dep’t of Lab. v. Greenwich Collieries, 512 U.S. 267, 276 (1994).

“[T]he burden of persuasion [is] the notion that if the evidence is evenly balanced, the

party that bears the burden of persuasion must lose.” Id. at 272. 

Under FORR, the shipper “bear[s] the burden of proof to demonstrate that (i)

the defendant carrier has market dominance over the transportation to which the rate

applies, and (ii) the challenged rate is unreasonable.” 88 Fed. Reg. at 302 (citing, in

part, 49 U.S.C. §§ 10701(d)(1), 10704(a)(1), 11704(b)). FORR, however, does not

require the shipper to bear the burden of proof on the final offer. The Board argues

that the “merits-stage ‘full hearing’ requirement is inapplicable at the remedy stage.”

hearings.” Id. (citing Am. Trucking Ass’ns v. United States, 344 U.S. 298, 318–20

(1953)).

As demonstrated supra, we conclude that § 554—and, as a result, § 556—apply

to § 10701’s “full hearing” requirement. As even the Board acknowledges, it has

previously recognized that § 556(d) is the source of burden allocation in assessing

maximum reasonable rates. See, e.g., Increased Rates on Coal, Midwestern

Railroads, Aug. 1979, 364 I.C.C. 29, 32 n.7 (1980) (“The Iowa utilities have the

burden of proving that the rates they advocate are the maximum reasonable rates. See

5 U.S.C. [§] 556(d). 49 U.S.C. [§] 11701, moreover, does not contain a specific

burden of proof for complaint proceedings. Therefore, the Administrative Procedure

Act places the burden on the proponent of the order, in this case the utilities filing the

complaint.”); Union Pac. R.R.—Pet. for Declaratory Ord., FD 35504, slip op. at 2

(STB served Oct. 10, 2014) (citing N. Am. Freight Car Ass’n v. BNSF Ry., NOR

42060 (Sub-No. 1), slip op. at 5 (STB served Jan. 26, 2007) (citing Cities Service Oil

Co. v. Soo Line R.R., 356 I.C.C. 838, 842 (1977) (“Complainant has the burden of

establishing by competent evidence that the assailed [demurrage and storage charges]

are unjust and unreasonable.”))).

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Respondents’ Br. at 26. But, under the APA, as “the proponent of a rule or order,” the

shipper “has the burden of proof” on the selection of offers. 5 U.S.C. § 556(d). FORR

is contrary to the APA because it does not require the shipper to carry the burden of

persuasion on the final offer; in fact, the shipper need not prove anything. Under

FORR, the Board is tasked only with “choos[ing] between the parties’ final offers.”

88 Fed. Reg. at 302.

Additionally, under FORR, contrary to the statutory language, it is the

parties—not the Board—that “prescribe the maximum rate” pursuant to § 10704(a). 

Instead, the Board receives and reviews the parties’ reasonableness analysis and final

offers reflecting the maximum reasonable rate.9 FORR then requires the Board to

“choose between the parties’ final offers. In making the rate reasonableness finding

and choosing between the offers,” the Board is to consider “the RTP [(rail

transportation policy in 49 U.S.C. § 10101)], the Long-Cannon factors in 49 U.S.C.

[§]10701(d)(2), and appropriate economic principles.” 88 Fed. Reg. at 302 (emphasis

added). But FORR strips the Board of its ability to modify the selected offer. See id.

at 301 (“[T]he Board chooses one of those [final offer comparison] groups without

modification.”). 

We conclude that this procedure falls short of the statutory requirement that

“the Board . . . prescribe the maximum rate.” 49 U.S.C. § 10704(a)(1) (emphasis

added). Under FORR, the Board is limited in its “ability to exercise its own judgment

by weighing each side’s arguments, evaluating the evidence, and considering both the

public interest and rail transportation policy.” 88 Fed. Reg. at 316 (Schultz,

9FORR acknowledges the “‘likely’ . . . overlap,” 88 Fed. Reg. at 307, between

the reasonableness inquiry and the Board’s setting the maximum rate, see 49 U.S.C.

§ 10704(a)(1), which it refers to as the “maximum reasonable rate,” 88 Fed. Reg. at

306 (emphasis added) (“[T]he maximum reasonable rate is the rate produced through

the Board’s rate reasonableness process . . . .”).

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dissenting). FORR effectively prevents the Board from giving “due consideration”

to the statutory factors that the Board is required to consider in assessing a rate’s

reasonableness, see 49 U.S.C. § 10701(d)(2), by limiting the Board to the two final

offers the parties propose in prescribing the maximum reasonable rate. Cf. BNSF Ry.

Co., 526 F.3d at 774 (“[T]he Board is the expert body Congress has designated to

weigh the many factors at issue when assessing whether a rate is just and reasonable

(emphasis added)). Despite the Board’s representation that it “would take into

account the criteria specified in . . . the [rail transportation policy], the Long-Cannon

factors in 49 U.S.C. [§] 10701(d)(2), and appropriate economic principles,” 88 Fed.

Reg. at 302, the Board has no choice but to choose between these two offers “even

if the Board finds the correct outcome falls above, below, or somewhere in between

the two submissions, id. at 316 (Schultz, dissenting). 

A hypothetical illustrates this point. Suppose a rail carrier is charging a rate of

$100. Applying the statutory factors, the Board concludes that the rate is

unreasonable. To make this finding of unreasonableness, the Board necessarily has

to determine what the reasonable rate is, applying the Long-Cannon factors and

relevant policy considerations. See 49 U.S.C. § 10701(d)(2). The Board, applying the

relevant factors, would have concluded that $98 is a reasonable rate; thus, the rail

carrier’s rate of $100 is unreasonable. But under FORR, the Board must now choose

between the parties’ two final offers to prescribe the maximum reasonable rate. The

rail carrier’s final offer is $99. The shipper’s final offer is $2. Under FORR, even if

the Board independently concludes that the maximum reasonable rate was between

$2 and $99, it would have no choice but to choose one of the parties’ offers. Thus, it

is one of the parties—not the Board—that prescribes the maximum rate, contrary to

the plain language of the statute. Id. § 10704(a)(1) (“[T]he Board may prescribe the

maximum rate . . . .” (emphasis added)). 

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By requiring “the Board” to “prescribe the maximum rate,” § 10704(a)(1)

rejects the notion that the Board is “to be a passive arbiter.” Pub. Serv. Co. of Colo.

v. Burlington N. & Santa Fe Ry. Co., STB Docket No. 42057, 2005 WL 126476, at

*3 (S.T.B. Jan. 19, 2005) (internal quotation marks omitted), pet. for review denied

sub nom. BNSF Ry. Co. v. Surface Transp. Bd., 453 F.3d 473 (D.C. Cir. 2006). The

Board is not merely “to act as an umpire, calling balls and strikes for the adversaries

appearing before [it]” when “considering a challenge to the reasonableness of a rate.”

Id. at *2. Instead, it must act as “the guardian of the general public interest, with a

duty to see that this interest is at all times effectively protected.” Id. at *3 (internal

quotation marks omitted). The Board is

not the prisoner of the party’s submissions, but rather ha[s] the duty to

“weigh alternatives and make its choice according to its judgment of

how best to achieve and advance the goals of the National

Transportation Policy.” In other words, the [Board is] not expected to

blandly call balls and strikes; rather, “the right of the public must receive

active and affirmative protection at the hands of the Commission.” 

Id. (footnote omitted) (first quoting Balt. & Ohio R.R. v. United States, 386 U.S. 372,

429 (1967) (Brennan, J., concurring), then quoting Harlem Valley Transp. Ass’n. v.

ICC, 500 F.2d 328, 335 (2d Cir. 1974)). 

III. Conclusion

Accordingly, we hold that the Board lacks statutory authority to prescribe rates

through FORR, grant the petitions for review, and vacate the final rule.10

______________________________

10Because we hold that the Board lacks statutory authority to implement FORR,

we need not address the petitioners’ remaining arguments.

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