Source: https://law.justia.com/cases/federal/appellate-courts/F2/664/568/198258/
Timestamp: 2019-12-06 06:45:42
Document Index: 383369082

Matched Legal Cases: ['§ 10707', '§ 10707', '§ 10707', '§ 11701', '§ 11701', '§ 10707', '§ 10704', '§ 10704', '§ 10701', '§ 10101', '§ 101', '§ 10101', '§ 10709', '§ 202', '§ 10709', '§ 208', '§ 10713', '§ 208', '§ 10713', '§ 208', '§ 10713', '§ 10713', '§ 10709', '§ 10709', '§ 10701', '§ 208', '§ 10713', '§ 207', '§ 10707']

United States Court of Appeals,sixth Circuit, 664 F.2d 568 (6th Cir. 1981) :: Justia
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United States Court of Appeals,sixth Circuit, 664 F.2d 568 (6th Cir. 1981)
US Court of Appeals for the Sixth Circuit - 664 F.2d 568 (6th Cir. 1981) Argued Oct. 21, 1981. Decided Nov. 20, 1981
Each shipper filed a complaint, and the ICC in each case began its own investigation into the reasonableness of the rate increases. The ICC initially determined that BN occupied a position of "market dominance" on the western rail routes involved.4 On December 26, 1979, the ICC issued a brief final decision finding BN's published rates not reasonable and ordering BN to cancel the proposed rates and to refund any monies collected in excess of previously established rates. This was the last day of the ICC's ten-month statutory deadline under 49 U.S.C. § 10707(b) (1) (1979 Supp. III) for issuing a final decision. On March 10, 1980, the ICC issued a longer opinion explaining its decision of December 26 and establishing the maximum lawful freight rates at the levels found in the individual BN-shipper agreements as escalated pursuant to the built-in formulas. In reaching this decision, the ICC stated that it had considered the privately negotiated rate agreements in its reasonableness determination according to its new "contract rates" policy,5 as well as the traditional criteria and cost analyses. It is this decision that we now review.
We first address a preliminary jurisdictional matter raised by the railroad. BN argues that by deferring until March 10, 1980, the issuance of its final explanation of the December 26, 1979 decision, the ICC violated the ten-month deadline for a final decision imposed by 49 U.S.C. § 10707(b) (1); therefore, BN argues the ICC acted unlawfully and without jurisdiction when it declared the rates unreasonable. BN also claims that the ICC was without authority to order a refund of monies collected.
Despite BN's protests to the contrary, we find that the ICC acted properly. Its December 26, 1979 decision was final and appealable, declaring that BN's proposed tariffs were not reasonable. While certainly it would have been preferable for the Commission to have published its entire decision on December 26,6 we are unable to read the statute as imposing any jurisdictional bar to ICC or judicial review due to the Commission's failure to do so. Even if we assumed the final decision did not come until March 10, 1980, under 49 U.S.C. § 10707 the only consequence of failing to meet the ten-month period is that the rate, if suspended, becomes effective. Under subsection 10707(b) (2): "If an interested party has filed a complaint under subsection (a) of this section (as the shippers in this case did), the Commission may set aside a rate ... that has become effective under this section if the Commission finds it to be in violation of this chapter." Thus, the Interstate Commerce Act itself clearly allows the Commission to set aside a rate that has become effective if that rate is later found to be unlawful. See Houston Lighting & Power Co. v. United States, 606 F.2d 1131, 1142 (D.C. Cir. 1979), cert. denied, 444 U.S. 1073, 100 S. Ct. 1019, 62 L. Ed. 2d 755 (1980). Moreover, 49 U.S.C. § 11701 authorizes the ICC to begin an investigation on its own initiative and requires the Commission to complete the investigation within three years. Only if the ICC fails to meet this deadline is the investigation "dismissed automatically." 49 U.S.C. § 11701(c). The Commission's investigation did not contravene this deadline.
BN admits that the Commission's refund power is coextensive with the Commission's authority to declare rates unreasonable. Nothing in section 10707 indicates that the Commission is divested of refund authority as long as it retains the power to investigate and declare the rate unreasonable. In fact, if a rate is not suspended, 49 U.S.C. § 10707(d) (1) requires the Commission to order a refund of amounts collected under an unreasonable rate when final action is taken. Since we find that the March 10, 1980 decision was valid, the ICC's refund order attending that decision was also valid, particularly in light of the prior refund order in the December 26 decision.
BN asserts that the ICC violated the language and intent of the Railroad Revitalization and Regulatory Reform Act of 1976, Pub. L. No. 94-210, 90 Stat. 31 (hereinafter referred to as the "4R Act") by enforcing what it conceived to be binding contracts between BN and the various shippers. This was improper, it claims, because there were in fact no contracts to be enforced. Specifically, BN argues that (1) there were no actual contractual instruments, (2) there was an absence of mutual obligation between BN and each shipper because the shippers were not bound to transport specific amounts of coal at any particular time, and (3) there was no intent to be bound by the alleged agreements since the parties knew that contracts were per se illegal, according to the Commission's decision in Guaranteed Rates, Sault Ste. Marie, Ontario to Chicago, 315 I.C.C. 311 (1961).
American Bus Association v. United States, 627 F.2d 525, 529 (D.C. Cir. 1980) (citations omitted). In American Bus, the D.C. Circuit inquired whether the alleged policy statement was " 'finally determinative of the issues or rights to which it was addressed.' " Id. at 531. The court first looked to the language of the policy statement and found that "nothing in it even hints to those who will apply the statement that they may exercise any discretion in doing so." Id. at 532. The court further found that the statement was "not 'simply a general pronouncement of the broad policy considerations which will motivate the Commission as it addresses itself to its appointed tasks ...' but rather, 'is in reality a flat rule of eligibility.' " Id. at 531-32.
In NLRB v. E & B Brewing Co., 276 F.2d 594, 600 (6th Cir. 1960), cert. denied, 366 U.S. 908, 81 S. Ct. 1083, 6 L. Ed. 2d 234 (1961), our court held that retroactive application of a change of policy should not occur where it will "work hardship upon a party altogether out of proportion to the public ends to be accomplished," citing NLRB v. Guy F. Atkinson Co., 195 F.2d 141 (9th Cir. 1952). At the same time the court observed: "It is not suggested that under no circumstances may an administrative ruling apply retroactively.... (A)ny 'case of first impression has a retroactive effect, whether the new principle is announced by a court or by an administrative agency.' " 276 F.2d at 600. These principles were in turn recognized by the D.C. Circuit in Retail, Wholesale and Department Store Union v. NLRB, 466 F.2d 380 (D.C. Cir. 1972), which articulated the following considerations that should govern any determination to apply new administrative standards and rules retroactively:
In short, we conclude that the ICC, in applying its contract rates policy in the BN-CC rate case, abdicated its independent review responsibility under the Interstate Commerce Act. The ICC has done precisely what its policy statement said would not be done with respect to rates which were agreed upon before November 1978; it has given them almost conclusively presumptive effect. Not only is this in violation of its own policy statement15 but such an application would, especially where made retroactive, raise serious questions regarding the need for rule-making under the APA. That portion of the ICC decision therefore must be vacated and the cause remanded for further proceedings, consistent with this opinion, regarding the BN-CC freight rates for coal from Kuehn and Colstrip, Montana. In doing so, however, we are obliged to review objections made by both BN and CC concerning certain alleged errors in the Commission's cost analysis. We note at the outset that courts traditionally have applied deferential standards in reviewing rate determinations by any agency that possesses expertise to analyze complicated economic data. Atchison, Topeka & Santa Fe Railway v. Witchita Board of Trade, 412 U.S. 800, 93 S. Ct. 2367, 37 L. Ed. 2d 350 (1973). Nevertheless, the courts retain authority to review agency decisions and to determine whether those decisions comport with applicable law, whether they are supported by the evidence, and whether the rationale employed is both discernible and defensible. San Antonio, Texas v. United States, 631 F.2d 831, 836 (D.C. Cir. 1980).
Finally, BN claims that the Commission erred in not recognizing the cost of its equity capital in determining an appropriate rate of return on the railroad's locomotive and caboose investments. The ICC calculated the rate of return using 9.34%-the interest rate found in BN's current equipment trust certificates. 362 I.C.C. at 685. BN claims that the equipment trust certificate rate reflects debt financing alone and does not take into account the higher cost of equity capital. BN argues that the 9.34% rate is lower than those approved in other cases and that this violates the 4R Act, which entitled railroads to earn a return on all "capital employed in the business" and to "raise needed equity capital." 49 U.S.C. § 10704(a) (2).
According to the Interstate Commerce Act, the ICC is permitted to allow a return on "capital" employed in the business. 49 U.S.C. § 10704(a) (2). As indicated earlier, it appears that the ICC allowed a rate of return on leased locomotives in order to cover what the Commission viewed as the rental cost of the locomotives, a cost determined by reference to the rate of interest found in the equipment trust certificates which BN used to finance its acquisition of these locomotives. The Commission expressly stated:
CC also argues that the Commission, in determining the cost of service for the BN-CC line movements, should have applied cost evidence submitted by MPL for the BN-MPL rate determination, since certain portions of the MPL and the CC line movements are virtually identical. It appears that the ICC used MPL's evidence for railroad maintenance cost along the BN-MPL line, but then used BN's higher system-wide average maintenance expense levels for the DE and CC lines, even though this traffic moved over line segments quite similar to the MPL line. Likewise, the ICC used MPL's apportionment factors when determining the amount of incremental road investment to be allocated to the BN-MPL variable cost determination. Yet, the ICC refused to apply these apportionment factors to determine variable costs for the BN-DE and BN-CC line movements. For both of these cost determinations, CC claims that the ICC was required by 49 U.S.C. § 10701(b) (2) (B)21 to apply MPL's specific cost evidence to other shippers' rate determinations if they travel over the same line segments as MPL.
The foregoing rulings have all been made in accordance with what the court has conceived to be the appropriate law as it was in effect at the time the petitions were filed, namely the Interstate Commerce Act as amended by the 4R Act. However, the Staggers Rail Act of 1980, Pub. L. No. 96-448, 94 Stat. 1895 (1980), 49 U.S.C.A. § 10101 et seq. (1981 pamphlet), became effective between the date of filing of the petitions and the date of the hearing in our court. We therefore requested additional briefing on the issue of what effect, if any, this new statute may have on the disposition of this appeal. We conclude that we are bound to decide this case in accordance with the law as it existed before the Staggers Rail Act. We believe that such a ruling is in accord with the Staggers Rail Act and existing judicial precedent, and that a proper beginning for the operation of the new policy as applied to this case depends upon a proper disposition under the old statutory scheme. As we have held in The Hanna Mining Co. v. The Escanaba and Lake Superior Railroad Co., 664 F.2d 594, No. 80-1681, also decided today, we limit our discussion of the new Act to the extent only that it is required by the facts before us.
The Staggers Rail Act of 1980 was signed into law by the President on October 14, 1980, and made effective as of October 1, 1980. The Act makes significant changes in the Interstate Commerce Act, particularly with regard to ICC jurisdiction to review proposed rates and to establish maximum reasonable rates. In essence, the Rail Act sought to deregulate the rail industry by allowing "to the maximum extent possible, competition and the demand for services to establish reasonable rates for transportation by rail." Pub. L. No. 96-448, § 101(a), 49 U.S.C.A. § 10101a.
Two provisions of the Staggers Rail Act are particularly relevant to determining the ICC's and this court's continued jurisdiction over the rate cases under review today. Section 202 establishes minimum threshold revenue-to-variable cost percentages, as a requirement for ICC jurisdiction to find market dominance which, in turn, is the necessary prerequisite for the ICC's authority to investigate the reasonableness of a proposed rate. See 49 U.S.C. § 10709 (1979 Supp. III). For the relevant time frame of this appeal, (i. e., October 1, 1980 to September 30, 1981), the applicable percentage threshold is 160%. Under the Staggers Rail Act, any proposed rate that generated a revenue-to-variable cost percentage of less than 160% could not be reviewed by the ICC for reasonableness. Pub. L. No. 96-448, § 202, 49 U.S.C.A. § 10709(d) (2) (A).
Section 208 authorizes rail carriers and shippers to enter into private agreements establishing rates for rail transportation services. Any such contract must be filed with the ICC and becomes valid unless the Commission finds that the contract violates that section.24 The ICC apparently cannot set the maximum reasonable rate between two contracting parties. Thus, subsection 10713(i) (1) exempts contracts filed with the ICC from the other provisions of the Interstate Commerce Act and from any subsequent review by the ICC. Subsection 10713(i) (2) vests exclusive jurisdiction in the courts for enforcement of contracts that are filed with the ICC.
Pub. L. No. 96-448, § 208, 49 U.S.C.A. § 10713(i) (2).25 Finally, subsection 10713(j), commonly known as a "grandfather clause," deals with contracts that do not technically fall under section 208's filing requirement because they were entered into prior to the effective date of the Staggers Rail Act. The section provides that such contracts have the same effect as do those entered into in accordance with the section. Pub. L. No. 96-448, § 208, 49 U.S.C.A. § 10713(j); See infra at 590-591. As noted in the companion case also decided today, see The Hanna Mining Co. v. The Escanaba & Lake Superior Railroad Co., 664 F.2d 594, No. 80-1681, Congressman Dingell introduced this grandfather provision as an amendment and expressed his intention that pre-existing lawful contracts were to be enforced in courts of law. See 126 Cong.Rec. H8606 (daily ed. September 9, 1980); 126 Cong.Rec. H10085-86 (daily ed. September 30, 1980).
Pub. L. No. 96-448, § 208, 49 U.S.C.A. § 10713(j) (emphasis added). Congressman Dingell's comments on the floor of the House further amplified the intent behind subsection 10713(j):
The plain language of Congressman Dingell's amendment, as well as the legislative history reflected by his comments in the House of Representatives, dispels any doubt that Congress intended to "grandfather-in" those pre-existing rate agreements subject only to two requirements: that the contract be lawful and in effect as of October 1, 1980. As noted earlier, the "exclusive remedy for any alleged breach of a contract entered into under this section shall be in an action in appropriate state court or United States District Court, unless the parties otherwise agree." 49 U.S.C.A. § 10713(i) (2).
Our conclusions are based on both legal and policy considerations. As a legal matter, in cases in which a carrier files a rate change that is approved by the Commission but that is in violation of the carrier's contract with a shipper, we believe that courts are without legal authority to provide shippers with a meaningful remedy for the breach of contract. Thus, it is well settled that courts may not award damages to shippers that would have the effect of reducing their transportation charges below the rate on file with the Commission. See, e. g., Montana-Dakota Co. v. Northwestern Public Service Co., 341 U.S. 246, 251, (71 S. Ct. 692, 695, 95 L. Ed. 912) (1951); Georgia v. Pennsylvania R. Co., 324 U.S. 439, 453 (65 S. Ct. 716, 724, 89 L. Ed. 1051) (1945); Lowden v. Simonds-Shields-Lonsdale Grain Co., 306 U.S. 516, 520 (59 S. Ct. 612, 614, 83 L. Ed. 953) (1939); Farley Terminal Co., Inc. v. Atchison, T. & S. F. Ry. Co., 522 F.2d 1095, 1098 (9th Cir. 1975). It is also well established that a court has no power to suspend or enjoin the effectiveness of a rate on file with the Commission. See, e. g., (Southern Ry. Co. v.) Seaboard Allied Milling Corp. v. Southern Ry. Co. (442 U.S. 444), 99 S. Ct. 2388 (60 L. Ed. 2d 1017) (1979); United States v. SCRAP, 412 U.S. 669 (93 S. Ct. 2405, 37 L. Ed. 2d 254) (1973); Arrow Transportation Co. v. Southern Ry., 372 U.S. 658 (83 S. Ct. 984, 10 L. Ed. 2d 52) (1963). The principle of those cases would also preclude courts from ordering a carrier to file a superceding tariff with the Commission in accordance with its contract because such an order would have the same effect as suspending a rate on file with the Commission. In light of these authorities, the Commission has concluded that if it declines to give any consideration to contracts between shippers and carriers when assessing the reasonableness of a rate increase, shippers would be without an effective remedy and the result would significantly undermine the Commission's policy in Ex Parte No. 358-F.
The foregoing legal considerations are reinforced by considerations of sound regulatory and transportation policy. Consideration of the weight to be given to contracts by the Commission rather than by many different federal and state courts will ensure national uniformity in the standards to be applied to rate matters, which is a fundamental purpose of the Interstate Commerce Act. See United States v. Radio Corporation of America, 358 U.S. 334, 346-348 (79 S. Ct. 457, 464-465, 3 L. Ed. 2d 354) (1959); Texas and Pacific R. Co. v. Abilene Cotton Oil Co., 204 U.S. 426, 440 (27 S. Ct. 350, 355, 51 L. Ed. 553) (1907). Such consideration by the Commission facilitates implementation of federal transportation and regulatory policies in a consistent manner.
Accordingly, the Commission will now consider rate contract allegations when raised in Commission proceedings. In regard to contracts entered into after issuance of the Commission's November 9, 1978 policy statement in Ex Parte No. 358-F, we will view the existence of such a contract as creating a presumption that a proposed rate change in excess of the contract rate is unreasonable in violation of the Interstate Commerce Act. However, there may be unusual and compelling circumstances which would rebut this presumption and warrant our upholding a rate change in excess of a contract rate. For example, the Commission might determine that a contract rate should not be enforced if it failed to contribute to the going concern value of the carrier as required by 49 U.S.C. 10701(b) or is likely to imperil the carrier's ability to provide essential rail service to the public. Cf. FPC v. Sierra Pacific Power Co., 350 U.S. 348, 355 (76 S. Ct. 368, 372, 100 L. Ed. 388) (1956).
Under section 202 of the Railroad Revitalization and Regulatory Reform Act of 1976, Pub. L. No. 94-210, 90 Stat. 31, ("the 4R Act"), the ICC cannot declare a rate to be unjust or unreasonable unless it first finds that the carrier proposing the rate has "market dominance" over the service to which the proposed rate applies. 49 U.S.C. § 10709(b) (1979 Supp. III). "Market dominance" is defined as "an absence of effective competition from other carriers or modes of transportation for the transportation to which a rate applies." 49 U.S.C. § 10709(a) (1979 Supp. III)
Section 10701(b) (2) (B) states:
49 U.S.C. § 10701(b) (2) (1979 Supp. III).
Under section 208, contracts setting rates for transportation of non-agricultural products may be reviewed by the ICC only to determine if (1) the contract unduly impairs the common carrier obligations of the contracting railroad to a non-contracting shipper or (2) the contract results in an unreasonable discrimination against a port. Contracts establishing rates for the transportation of agricultural commodities can be reviewed upon the grounds listed above and also to determine if the contract either discriminates against another shipper or constitutes a destructive competitive practice. See Pub. L. No. 96-448, § 208, 49 U.S.C.A. § 10713(d)
Section 207 of the Staggers Rail Act allows the Commission a maximum of eight months for investigating and determining the reasonableness of rates filed with the ICC by a railroad acting as a common carrier. Section 208 only allows the Commission 30 days to complete an investigation of contract rates filed with the ICC. See Pub. L. No. 96-488, §§ 207, 208, 49 U.S.C.A. §§ 10707(b), 10713(d) (3) (A)