Opinion ID: 186662
Heading Depth: 1
Heading Rank: 2

Heading: The Shippers' Petition

Text: 65 The award that prompted the carriers' petition concerned a set of shipments made by the shipper-petitioners (Big West and Chevron Products) as owners of the oil from the moment it left the border (if not earlier), contracting directly with the carriers. But there was a second set of shipments made by third-party owner-shippers, who had contracted to sell the oil to Big West and Chevron Products under price terms that specifically included whatever the carriers had charged for transportation, plus an additional amount dependent on various factors that don't concern us. The shipper-petitioners characterize their contracts with the third parties as cost-plus contracts, in that the price consisted of the cost of transportation from the border to Salt Lake City, plus additional charges that didn't vary with that cost. We assume in the shipper-petitioners' favor that their version of events is accurate. 66 In their response to Frontier's compliance filing, Big West and Chevron Products sought reparations for any overcharges on the second set of shipments, reasoning that such charges had been passed on to them via the cost-plus contracts. FERC rejected this pass-on theory, holding that damages under the ICA were available only to shippers who were in privity with the carrier (i.e., who directly or through an agent contracted with it). Reparations Order, 106 FERC at PP 24-28, pp. 61,572-73. The shippers requested rehearing, which FERC denied. Rehearing Order, 108 FERC at PP 54-88, pp. 62,105-10. Big West and Chevron Products now petition for review. 67 Reparations for violations of the ICA are generally governed by § 8, 49 U.S.C. app. § 8 (1988), under which a person who commits an unlawful act under the statute is liable to the person or persons injured thereby for the full amount of damages sustained in consequence of any such violation. The language appears very general, saying nothing to suggest that it would be unreasonable under Chevron for the Commission to limit damages to parties who were directly charged for the overpriced service. 68 Nor do prior judicial interpretations of the ICA support the shipper-petitioners' contention. In Southern Pacific Co. v. Darnell-Taenzer Lumber Co., 245 U.S. 531, 38 S.Ct. 186, 62 L.Ed. 451 (1918), carriers asserted passing on as a defense, i.e., they argued that plaintiff-shippers had passed the overcharge onto their customers and therefore hadn't been injured. The Court rejected the defense, declaring that the general tendency of the law, in regard to damages at least, is not to go beyond the first step, id. at 533, 38 S.Ct. 186, thus avoiding the endlessness and futility of the effort to follow every transaction to its ultimate result, id. at 534, 38 S.Ct. 186. The shipper-petitioners say that Darnell-Taenzer applies only to passing-on as a defense, but it was hardly unreasonable of FERC to find that the Court's critique of the theory applies as well when it's used offensively. Cf. Illinois Brick Co. v. Illinois, 431 U.S. 720, 729-36, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977) (holding that under Clayton Act § 4, 15 U.S.C. § 15, the pass-on theory must be treated the same regardless of whether it's used offensively or defensively). 69 In Sloss-Sheffield, also involving defensive use of passing on, the Court identified a complication affecting any purported calculation of the true economic incidence of the overcharge. The carrier asked the Court to create an exception to Darnell-Taenzer for cases where the shipper and its buyer invariably used a cost-plus contract, i.e., one that set the price equal to the actual rate paid for the transportation (even if the rate rose or fell after the agreement was made), plus a fixed dollar amount per ton. Sloss-Sheffield, 269 U.S. at 235-36, 46 S.Ct. 73. The Court refused, since the cost-plus arrangement didn't altogether negate the economic effect of the overcharge on the shipper: 70 The [carrier's argument] ignores the commercial significance of selling at a delivered price. When a seller enters a competitive market with a standard article he must meet offerings from other sources. On goods sold f.o.b. destination [i.e., where the seller is liable to the carrier for the price of transportation, and the buyer doesn't take title to the goods until they arrive], the published freight charge from the point of origin becomes, in essence, a part of the seller's cost of production. An excessive freight charge for delivery of the finished article affects him as directly as does a like charge upon his raw materials. 71 269 U.S. at 237-38, 46 S.Ct. 73. That is, a shipper facing an overcharge for transportation must (1) maintain its price and accept a lower profit per unit, or (2) raise its price, at the expense of risking loss of some (perhaps all) sales. Even if the contract nominally imposes the cost of transportation on the buyer, the parties may take account of the overcharge when bargaining over the other component(s) of the price. 72 Sloss-Sheffield 's point has broader significance. Parties agreeing on a sale at a price that fluctuates with shipping costs do so aware that post-shipment regulatory intervention may ultimately decrease that cost. As to disposition of the reparations, any explicit arrangement that they make presumably controls as between the contracting parties. The rule of Sloss-Sheffield (understood in light of Darnell-Taenzer ) seems to be that—absent any express provision—reparations go by default to the party who contracted with the carrier, since the overcharge is easiest to discern and measure in the context of the shipper-carrier transaction, whereas the overcharge's ultimate impact on transactions and parties down the supply chain is far less ascertainable. As we shall see, there are contract clauses from which courts or agencies might draw a different inference, such as a provision making the party contracting with the carrier the agent of the other party. But the shipper-petitioners here asserted no such provision. 73 The shipper-petitioners attempt to distinguish Sloss-Sheffield by noting that, in the ICC proceedings, both the consignor and the consignees claimed reparation. 269 U.S. at 237, 46 S.Ct. 73. The case gave preference to direct purchasers of transportation, they argue, only because direct and indirect purchasers were seeking to recover the same overcharge in a single proceeding, forcing the ICC to choose between them to prevent double recovery. Reply Brief of Petitioners Big West Oil, LLC and Chevron Products Company at 7-9. In fact, however, Sloss-Sheffield mentions the competing claimants only in passing and says nothing to suggest that its holding is needed to thwart a risk of double recovery. 269 U.S. at 237-38, 46 S.Ct. 73. More generally, as the risk of double recovery seems to have played no role in FERC's decision, we need not address the shipper-petitioners' efforts to assuage our hypothetical anxiety that accepting their view might generate such a risk. 74 The shipper-petitioners contend that Gabbert v. Atchison, Topeka & Santa Fe Railway Co., 93 F.2d 562 (5th Cir.1937), interprets Sloss-Sheffield in a way that favors their position. They are mistaken. In allowing purchasers to recover freight overcharges the Gabbert court distinguished Sloss-Sheffield by noting that (1) the Gabbert purchasers took title to the goods before shipment, and (2) the sellers acted as the buyers' agents in making physical payment of the charges. Id. at 562-63. In our case, by contrast, the shipper-petitioners concede that they took title only after shipment, and they don't allege that the third-party firms acted as their agents. 75 McCarty Farms, Inc. v. Burlington Northern, Inc., 91 F.R.D. 486 (D. Montana 1981), also cited by shipper-petitioners, held that farmers selling wheat on consignment had standing to sue a carrier for overcharges even though only the consignees actually contracted with the carrier. Id. at 487 & n. 2, 492. FERC distinguished McCarty on the ground that the consignors held title to the goods before and during shipment and also (apparently) on the ground that the consignees in paying the freight acted as agents for the consignors. Rehearing Order, 108 FERC at P 69, pp. 62,107-08. McCarty itself, however, never says which party held title at what point nor mentions a principal-agent relationship; and the consignment relationship per se doesn't imply who would hold title at what point or necessarily imply a principal-agent relationship. See RESTATEMENT (SECOND) OF AGENCY § 14J (1958) (existence of agency relation in consignment determined by parties' agreement on obligations of consignee); id. cmt. b (title in consignment relation). 76 The principal affirmative basis for the McCarty decision was Adams v. Mills, 286 U.S. 397, 407-08, 52 S.Ct. 589, 76 L.Ed. 1184 (1932), a decision straightforwardly applying Sloss-Sheffield (and, like it, authored by Justice Brandeis) to reject the carrier's passing-on defense. In Adams, plaintiff-consignees had been liable for the charges and had paid them, and the decision affirms their right to recover. Id. at 405-09, 52 S.Ct. 589. But they had evidently been reimbursed for the charges by the consignors. Id. at 407, 52 S.Ct. 589. Adams was at pains to make clear that [t]he rights of the shippers in the proceeds of the action will not be affected by [the Court's] decision, that those rights might have been asserted by intervention in the Commission proceeding, and that they might still be asserted. Id. at 407-08, 52 S.Ct. 589. The Adams dictum thus seems to go no further than to suggest that where the party with the legal obligation to pay the carrier does so, and is reimbursed by another party, the reimbursing party can protect its interests and in some way participate in the action before the Commission. 77 Thus, even if Adams 's dictum represented a statutory reading precluding contradiction by the Commission under National Cable (and we do not decide whether it does), that reading wouldn't apply to this case. As to McCarty 's extension of the Adams dictum, we find that it neither pays deference to the Interstate Commerce Commission (unsurprising as it antedates Chevron and deals with class certification prior to an ICC proceeding, McCarty, 91 F.R.D. at 486-87) nor represents an interpretation unambiguously compelled by the statute. Any error by FERC in its treatment of McCarty is harmless. See 5 U.S.C. § 706 (in judicial review of agency action, due account shall be taken of the rule of prejudicial error); PDK Laboratories, Inc. v. DEA, 362 F.3d 786, 799 (D.C.Cir.2004). 78 Perhaps sensing that the cases interpreting the ICA provide (at best) no support for their pass-on theory, the shipper-petitioners argue in the alternative that those decisions have been implicitly modified by more recent decisions of the Supreme Court discussing the pass-on theory under an entirely different statute, Clayton Act § 4, 15 U.S.C. § 15 (any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor . . . and shall recover threefold the damages by him sustained). In a succession of cases, the Court has refused to allow passing on either as an affirmative theory of recovery or as a defense, while preserving the possibility of its use in the case of a pre-existing cost-plus contract. 79 Thus in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968), the Court held that a pass-on defense was generally impermissible under Clayton Act § 4, for two reasons: it was impractical to discern how the economic consequences of an overcharge were distributed, id. at 492-93, 88 S.Ct. 2224; and plaintiffs further down the supply chain would normally have smaller stakes and would therefore be less inclined to enforce their rights, id. at 494, 88 S.Ct. 2224. But the Court noted a possible qualification: We recognize that there might be situations—for instance, when an overcharged buyer has a pre-existing `cost-plus' contract, thus making it easy to prove that he has not been damaged—where the considerations requiring that the passing-on defense not be permitted in this case would not be present. Id. The Court also rejected passing-on, but referred to the same possible exception, in Illinois Brick, 431 U.S. at 735-36, 97 S.Ct. 2061, and in Kansas v. Utili-Corp United, Inc., 497 U.S. 199, 217-18, 110 S.Ct. 2807, 111 L.Ed.2d 169 (1990) (rejecting effort to analogize customers of a utility with regulated prices to buyers under a cost-plus contract, to enable them to recover from natural gas suppliers who allegedly overcharged the utility). 80 We reject the shipper-petitioners' contention that these decisions' language preserving a possible exception for the pre-existing cost-plus contract renders FERC's denial of their pass-on theory unreasonable. Hanover Shoe, Illinois Brick, and UtiliCorp construe Clayton Act § 4 de novo, choosing what the Court considers to be the single best approach to damages under that provision. They do not purport to establish a general federal law of damages. See, e.g., Illinois Brick, 431 U.S. at 736-37, 97 S.Ct. 2061 (characterizing the question as one of statutory construction). Here, FERC construes the ICA, a different statute and one that Congress has empowered the agency to administer with the benefit of its expertise. The Clayton Act cases raise the possibility of a pre-existing cost-plus contract exception (and we emphasize they never call it more than a possibility) only because the Court theorizes that such a contract might eliminate all the uncertainties normally inherent in applying a pass-on theory. The degree to which a particular contract can actually fulfill that promise depends on how precisely one can discern the motivations of economic actors under various constraints. And, at any given level of precision, there remains the question of how to weigh the costs of calculation and of residual error against the potential advantages of a rule that supposedly allocates damage rights in more exact conformity with the actual economic burden of an overcharge. These issues are not specifically addressed by Congress in the Clayton Act or the ICA. In the present case, they are for FERC to judge. And the agency has made a reasoned judgment, stating that the pass-on theory would complicate unnecessarily the Commission's administration of the ICA, Rehearing Order, 108 FERC at P 82, p. 62,109, by saddling the agency with the difficulties of isolating transportation costs, id. at P 84, 62,109. In apparent response to the shipper-petitioners' assertions about the advantages of a more economically exact allocation of damage rights, the agency noted that parties remain free to make private agreements. . . to share responsibility for transportation or any other costs. Id. at P 85, p. 62,110. 81 On this point, shipper-petitioners again cite McCarty, this time for the proposition that Hanover Shoe and Illinois Brick seriously modified the prior interpretations of the ICA in Darnell-Taenzer and Sloss-Sheffield. McCarty, 91 F.R.D. at 489. But McCarty involved a controversy over class certification prior to an ICC proceeding; it was not reviewing an agency construction of the statute. 91 F.R.D. at 486-87. We further note that so far as appears the defendant in McCarty neglected to assert the main problem that Illinois Brick said rendered the theory impractical (i.e., the difficulties of discerning how the transportation overcharge interacted with other market conditions in determining the price of the good), or, if it did, the court declined to grapple with such difficulties. See McCarty, 91 F.R.D. at 491-92 & nn. 15-16. 82 The shipper-petitioners cite OXY USA, Inc. v. FERC, 64 F.3d 679 (D.C.Cir.1995), but it is of no use to them. That case concerns whether parties not in privity with carriers may have standing to contest FERC rulings under the ICA, not whether they have a right to reparations. Id. at 697. Finally, the shipper-petitioners argue in a footnote that FERC's stance is inconsistent with prior ICC decisions. Appeal Brief of Petitioners Big West Oil, LLC and Chevron Products Company at 28 n. 64. They did not raise this argument below, see Request for Rehearing of Big West Oil LLC and Chevron Products Company at 1-26; Response of Complainants Big West Oil LLC and Chevron Products Company to Compliance Filing of Frontier Pipeline Company etc. at 28-33, and thus we do not consider it. 83