Opinion ID: 2999644
Heading Depth: 2
Heading Rank: 1

Heading: Valuation of Scrap Steel

Text: TP&W first contends that the STB’s methodology in pricing its scrap steel is contrary to the general rule that a property owner is entitled to the “fair market value of its property as of the date of the taking.” Petitioner’s Br. at 22 (emphasis in original). Because the STB’s methodology departs from “prior agency precedent without proper explanation,” TP&W urges us to find the STB’s valuation of the line “arbitrary and capricious.” Id. at 26.16 16 TP&W also contends in its brief on appeal that the STB’s valuation of the scrap steel violates the Fifth Amendment’s guarantee that an owner receive just compensation for its property. See Petitioner’s Br. at 22. However, after careful review (continued...) 20 No. 05-1920 We afford substantial deference to the STB’s interpretation of the statutes and regulations it administers, including 49 U.S.C. § 10907. Although section 10907(c)(1) explicitly sets forth a number of prerequisites to approval of the sale of a rail line, the statute largely is silent with respect to valuation: section (b)(2) specifies that the constitutional minimum value of a line is “not less than the net liquidation value of such line or the going concern value of such line, whichever is greater,” id. § 10907(b)(2), but it does not speak to what constitutes, or the factors that affect, the calculation of the line’s going concern or net liquidation value. “When a statute is found to be either silent or ambiguous, the court must uphold the agency’s interpretation if it is based on a ‘permissible construction of the statute.’ Courts generally defer to agency expertise when interpreting vague or incomplete statutes.” Johnson v. Apfel, 191 F.3d 770, 774 (7th Cir. 1999) (quoting Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 (1984)). (...continued) of the record, we believe that TP&W has waived this argument. In its petition for reconsideration, TP&W contended that the STB’s decision to “average the price of scrap steel over a time period” was contrary to agency precedent, including the STB’s decision in LaPorte Abandonment. A.R. 212639 at 17. Specifically, TP&W claimed that the STB previously only has averaged prices where the value of scrap metal “had been falling,” which did not occur in this case. Id. Because TP&W did not raise a Fifth Amendment challenge to the STB’s valuation methodology in agency proceedings, we decline to address this dimension of their argument on appeal. See Ester v. Principi, 250 F.3d 1068, 1072 (7th Cir. 2001) (holding that arguments “not made before the administrative agency are subsequently waived before the courts” (citing United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37 (1952))). No. 05-1920 21 As a result, our review of the STB’s valuation of a rail line’s constitutional minimum value is narrow. See Decatur County Comm’rs v. Surface Transp. Bd., 308 F.3d 710, 714 (7th Cir. 2002). We “give considerable weight and due deference to the [STB’s] interpretation of [49 U.S.C. § 10907(b)] unless its statutory construction is plainly unreasonable.” R.R. Ventures, Inc. v. Surface Transp. Bd., 299 F.3d 523, 548 (6th Cir. 2002) (internal quotation marks omitted; first alteration in original); see also Decatur County Comm’rs, 308 F.3d at 714. Moreover, we shall not set aside the STB’s factual findings unless they are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; contrary to constitutional right, power, privilege, or immunity; in excess of statutory jurisdiction[;] . . . or unsupported by substantial evidence . . . .” 5 U.S.C. § 706(2)(A)-(E); see also Caddo Antoine & Little Missouri R.R. Co. v. United States, 95 F.3d 740, 746 (8th Cir. 1996) (holding that, to overturn the STB’s valuation of a rail line, there must be “compelling indications that the [STB’s] interpretation is incorrect”); Missouri Pac. R.R. Co. v. I.C.C., 23 F.3d 531, 533 (D.C. Cir. 1994) (“The court has only limited scope to review the substantive validity of the [STB’s] decision: we must affirm unless that decision is arbitrary and capricious, exceeds the [STB’s] authority, or diverges without explanation from agency precedent.” (internal quotation marks omitted)); R.R. Ventures, 299 F.3d at 558 (noting that this standard of review “generally requires affirmance of the STB’s valuation decisions”). “A decision is not arbitrary or capricious when it is possible to offer a reasoned, evidencebased explanation for a particular outcome.” R.R. Ventures, 299 F.3d at 548; see Highway J Citizens Group v. Mineta, 349 F.3d 938, 953 (7th Cir. 2003) (holding that, “[i]f an agency considers the proper factors and makes a factual determination” that a particular result is compelled, “that decision 22 No. 05-1920 implicates substantial agency expertise and is entitled to deference”).17 In this case, the methodology employed by the STB in calculating the net salvage value of TP&W’s rail line was reasonable, and not arbitrary or capricious or otherwise not in accordance with the law. The STB found that prices for steel had been extremely volatile over the course of the proceedings. Consequently, it concluded that calculating the statutory constitutional minimum value of the line by averaging the price of steel from April 2003 to July 2004, as opposed to applying the market price of steel on the date of final sale, more accurately reflected the line’s probable value on the open market than did the artificially inflated market price of steel as of November 1, 2004. That decision was 17 See also Borough of Columbia v. Surface Transp. Bd., 342 F.3d 222, 235 (3d Cir. 2003) (in evaluating petitioner’s Fifth Amendment claim, deferring to the STB’s determination and noting that it is “loath to second-guess the factual determinations of the agency to which Congress has assigned decision-making responsibility”); GS Roofing Prods. Co. v. Surface Transp. Bd., 262 F.3d 767, 774 (8th Cir. 2001) (in the context of reviewing the calculation of constitutional minimum value under § 10907, noting that the “scope of review . . . is narrow” and that courts “are required to give considerable deference to the Board’s interpretation” and “will not disturb the Board’s decision absent compelling indications that the Board’s interpretations were incorrect”); Iowa Terminal R.R. Co. v. I.C.C., 853 F.2d 965, 969-71 (D.C. Cir. 1988) (reviewing the Board’s valuation order to determine whether it was “arbitrary or capricious”). TP&W’s only argument to the contrary—that we review all allegations of constitutional error by the STB de novo—is inapplicable; any constitutional error was not adequately preserved by TP&W for appeal. See supra n.16. No. 05-1920 23 justified by the STB’s careful consideration of a number of factors, most notably the widely-fluctuating price of steel.18 The evidence submitted by the parties prior to the STB’s final decision indicates that the steel market was unstable while STB proceedings were ongoing, marked by significant price shifts within short periods of time. See TP&W’s Petition for Reconsideration, A.R. 212639, Ex.E (setting forth the market value of scrap and reroll steel over the course of seven months, from April to November 2004); KJRY’s Reply to TP&W’s Reroll Value Evidence, A.R. 212724; see also id., Ex.1. Our role is not to reweigh this evidence, but to determine whether the STB’s conclusions regarding market fluctuation are supported by substantial evidence.19 The STB’s conclusion finds such support in the revised valuations submitted by the parties after the record had closed and in the updated data submitted by the parties with respect to the petition for reconsideration. See Howard Young Med. Ctr., Inc. v. Shalala, 207 F.3d 437, 441 (7th Cir. 2000) (“We are not permitted to reweigh the evidence or to substitute our own judgment for that of the administrative agency.”); see also W. Coal Traffic League v. Surface Transp. Bd., 169 F.3d 775, 780-81 (D.C. Cir. 1999) (upholding the STB’s determination even when “evidence to the 18 TP&W has not challenged the STB’s findings on the volatility of steel prices. 19 This is especially true given that the statute and regulations do not require the valuation of track materials at the market price as of the date of taking or sale. Cf. Howard Young Med. Ctr., Inc. v. Shalala, 207 F.3d 437, 442 (7th Cir. 2000) (holding that, because the Secretary of Health and Human Services was not required by statute or regulation to interpret the data submitted in a particular fashion, it was appropriate to defer to the agency’s interpretation of that data). 24 No. 05-1920 contrary” was “substantial” because “evidence supporting the Board’s conclusion [also was] substantial”). We take note of TP&W’s argument that Kirby Forest Industries, Inc. v. United States, 467 U.S. 1 (1984), requires valuation of property “at the time of the taking,” id. at 10, which, in turn, was defined by the Court as the date of “payment of the condemnation award,” id. at 14; see also Petitioner’s Br. at 22-24. In Kirby Forest, the Supreme Court addressed when a taking of property by use of the “straightcondemnation” procedure provided in 40 U.S.C. § 257 “should be deemed to occur” for purposes of valuing the land. Kirby Forest, 467 U.S. at 9. Just compensation, the Supreme Court held, “means in most cases the fair market value of the property on the date it is appropriated.” Id. at 10. In the context of straight-condemnation proceedings, it concluded, the date on which the property is appropriated is the date on which “the United States tenders payment to the owner of the land.” Id. at 11. Relying on this analysis, TP&W contends that the date of taking in this case was on or about February 7, 2005, and that the STB was required to calculate the value of the line according to market conditions on that date. TP&W, however, did not cite Kirby Forest before the STB and, in fact, urged the STB to calculate the market price of steel as of November 1, 2004, the date of the STB’s valuation decision, not as of February 7, 2005, the date that the sale of TP&W’s line to KJRY became final. See Petition for Reconsideration, A.R. 212639 at 18 (urging the STB to value the track and materials at market value “as of November 1, 2004, the date nearest the service of the [STB’s October decision] and the date on which Mr. [G]arvin would voluntarily sell the scrap steel”). TP&W therefore has waived this argument. See Ester v. Principi, 250 F.3d 1068, 1072 (7th Cir. 2001) (holding that No. 05-1920 25 arguments “not made before the administrative agency are subsequently waived before the courts” (citing United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37 (1952))). Even if we were to reach the merits of TP&W’s argu- ment, we would find it lacking. Kirby Forest involved a factual scenario that is not analogous to the present case. The Supreme Court went to great lengths to distinguish the facts presented in Kirby Forest from similar scenarios unaffected by its holding; it even noted that “[n]one of the discussion in this opinion is intended to modify either the manner in which the fair-market-value standard is interpreted and applied or the test for determining when the fair-market-value standard must be supplanted by other formulae.” Kirby Forest, 467 U.S. at 10 n.15. Specifically, it recognized that there are two scenarios in which “[j]ust compensation” does not mean “the fair market value of the property on the date it is appropriated.” Id. at 10 (internal quotation marks omitted). “Other measures of ‘just compensation,’ ” the Court explained, “are employed . . . when market value [is] too difficult to find, or when its application would result in a manifest injustice to owner or public.” Id. at 10 n.14 (internal quotation marks omitted; second alteration in original). Although the STB did not address Kirby Forest specifically, its rationale mirrors the Supreme Court’s analysis: In effect, the STB determined that, in this case, market value was too difficult to ascertain and priceaveraging would be more fair to the parties. Specifically, the STB reasonably determined that, because of unusual market volatility, a traditional just compensation model was not appropriate. Market fluctuation over the course of proceedings made it “too difficult” to pinpoint the fair market value of TP&W’s materials. Id. Moreover, the inflated prices of steel on the date of final sale and on the date of appropriation meant that market value on those dates, according to 26 No. 05-1920 the STB, did not represent the fair market value of TP&W’s assets and would result in “manifest injustice” to the purchaser, KJRY. Id. The price of steel almost had doubled between April 2003, the date that the feeder line application was filed, and November 2004, the date of final decision; the STB therefore determined that it was appropriate to supplant the fair-market standard with another formula, one that averaged steel prices over a fourteen-month period. See Petitioner’s App., Ex.B at 12 (holding that price-averaging “protect[s] sellers from dramatic price reductions and buyers from dramatic price increases”). Given the STB’s careful consideration of the matter of just compensation, we cannot agree that the Supreme Court’s decision in Kirby Forest renders the STB’s methodology in this case arbitrary and capricious. TP&W also submits that the STB’s methodology is inconsistent with agency precedent. See, e.g., CSX Transport, Inc.—Abandonment Exception—In LaPorte, Porter & Starke Counties, Indiana, STB Docket No. AB-55, 2004 WL 933330 (April 30, 2004) (hereinafter “LaPorte”). In LaPorte, the Town of North Judson (“Town”) submitted an offer of financial assistance (“OFA”), see 49 U.S.C. § 10904, to purchase a portion of a rail line owned by CSX Transportation, Inc. Because the parties were unable to reach agreement on the sale of the line, the Town requested that the STB set the terms of sale. See 49 U.S.C. § 10904(e). CSX proposed a purchase price that was higher than the price it had suggested in prior negotiations and alleged that the price of scrap steel had risen steeply. The Town filed a motion to strike the evidence offered by CSX to demonstrate the increased value of the line, claiming that CSX wrongfully withheld this information until late in the proceedings. See LaPorte, 2004 WL 933330, at . The STB held that, although it generally No. 05-1920 27 disfavors a party’s later introduction of evidence that could have been presented in its initial pleading (particularly in OFA proceedings where the statutory time frames are short), the recent sharp increase in the price of scrap steel warrants consideration of the new evidence in light of the [STB’s] duty to set a purchase price for the line that is no lower than the constitutional minimum value. Id. at . The STB’s analysis in LaPorte does not constrain its choice of methodology in pricing TP&W’s line in the present case. “[OFA] statutory time frames are short” and the proceedings transpire rapidly, id.; the regulations in LaPorte set a 30-day deadline on the submission of offers of financial assistance and on the submission of a request for the STB to establish the terms of sale after the parties fail to reach agreement, see 49 C.F.R. § 1152.27. As a result, market data submitted by parties in OFA proceedings, including the parties in LaPorte, is largely contemporaneous with the market conditions that existed both at the commencement of the litigation and at the time of final decision. By contrast, when litigation is more lengthy, it is likely that there will be a significant market shift in the price of steel between the date that proceedings are commenced and the date of final sale or taking (as occurred in the present case). Such a shift renders the selection of a date on which to price the steel arbitrary and makes price-averaging a reasonable alternative to traditional valuation schemes. Under similar circumstances, in fact, the STB has averaged prices to account for market fluctuations during feeder line proceedings. See, e.g., Chicago & N.W. Transp. Co.—Abandonment between Ringwood, Illinois & Geneva, Wisconsin, 363 I.C.C. 956, 960 (1988) (averaging prices for salvage over a six-month period, 28 No. 05-1920 finding that current market prices “exaggerate[d] the value of the reusable rail involved”); Chicago & N.W. Transp. Co.— Abandonment between Marshalltown (Powerville) & Cedar Falls Junction & between Hicks and Dike—in Marshall, Tama, Grundy & Blackhawk Counties, Iowa, 1988 WL 225134, at  (STB Dec. 7, 1988) (“[The railroad] replies that it used the most recent 6-month average of scrap prices actually received . . . , a procedure accepted in numerous other abandonment cases . . . . [It] has presented a reasonable estimate for the value of its rail, supported by adequate justification of its methodology.”); cf. GS Roofing, 262 F.3d at 776 (affirming the STB’s use of system-wide averages, rather than line-specific data, due to the lack of information and noting that, although this practice was not “preferable,” it also could not be considered arbitrary or capricious). In fact, the STB has noted that “[u]se of a 6-month average to determine NLV for track . . . is accepted methodology.” Chicago & N.W. Transp. Co.—Abandonment Between Steamboat Rock & Hampton in Hardin & Franklin Counties, Iowa, STB Docket No. AB-1, 1989 WL 238616, at  n.5 (1989).20 20 On appeal, TP&W contends that the STB’s choice of dates by which to calculate a fourteen-month average price of steel was unreasonable and arbitrary. Specifically, it argues that the starting date of the fourteen-month average, April 2003, was improper because “KJRY did not even file a proper application until June of 2003.” Petitioner’s Br. at 29. TP&W further contends that the ending date of the monthly average, July 2004, has no particular relevance to the case but rather is merely the last month of available data. These arguments, however, were not made in STB proceedings. In its petition for reconsideration, TP&W contended that the STB “failed to follow its own precedent in averaging the value of scrap steel,” A.R. 212639 at 17, and (continued...) No. 05-1920 29 In sum, because of unpredictable market conditions during the course of this litigation and the unpredictability of the date of final sale, and because this approach is consistent with both Supreme Court and agency precedent, we conclude that the STB’s price-averaging methodology was not arbitrary or capricious.