United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 12, 1999 Decided February 15, 2000
No. 98-1058
Union Pacific Railroad Company,
Petitioner
v.
Surface Transportation Board and
United States of America,
Respondents
FMC Corp. and
FMC Wyoming Corporation,
Intervenors
On Petition for Review of an Order of the
Surface Transportation Board
Arvid E. Roach, II argued the cause for petitioner. With
him on the briefs were James V. Dolan and Lawrence E.
Wzorek. Carolyn F. Corwin, Louise A. Rinn, and Schuyler
W. Livingston, Jr., entered appearances.
Richard E. Weicher, Myles L. Tobin, P. Michael Giftos,
James V. Dolan, Louis P. Warchot, and Samuel M. Sipe, Jr.,
were on the brief for amicus curiae Association of American
Railroads.
Thomas J. Stilling, Attorney, Surface Transportation
Board, argued the cause for respondents. With him on the
brief were Henri F. Rush, General Counsel, Craig M. Keats,
Associate General Counsel, Theodore K. Kalick, Attorney,
Joel I. Klein, Assistant Attorney General, United States
Department of Justice, and John J. Powers, III and John P.
Fonte, Attorneys. Robert B. Nicholson, Attorney, and Ellen
D. Hanson, Deputy General Counsel, Surface Transportation
Board, entered appearances.
Edward D. Greenberg, David K. Monroe, and William F.
Krebs were on the brief for intervenors. David A. Stein
entered an appearance.
William L. Slover, John H. LeSeur, and Andrew B. Kole-
sar, III were on the brief for amicus curiae Western Coal
Traffic League.
Before: Edwards, Chief Judge, Silberman and Henderson,
Circuit Judges.
Opinion for the Court filed by Circuit Judge Silberman.
Silberman, Circuit Judge: Union Pacific Railroad Compa-
ny petitions for review of a Surface Transportation Board
decision compelling the carrier to establish for shipper FMC
Wyoming common carriage rates that can be used in combi-
nation with contract rates FMC secured with another rail-
road. We deny the petition.
I.
FMC Wyoming, Inc., transports soda ash by rail from its
production facilities in Westvaco, Wyoming, to customers in
the eastern and southern United States. No single rail
carrier can provide origin-to-destination service for the en-
tirety of this route. That is because Union Pacific Railroad
Company is a so-called "bottleneck" carrier for the initial
segment: it is the only railroad providing service directly to
and from Westvaco. Depending on the particular destination
to which it wishes to ship, however, FMC has a choice of
carriers it may use to complete a route. FMC had entered
into contracts with Union Pacific to carry soda ash to Mid-
west "gateways" in East St. Louis and Chicago. Then the
soda ash was transported under separate contracts on a
second railroad, CSX Transportation, Inc., to FMC's custom-
ers. These contracts were to expire at the end of 1997.
During the last year that these contracts were in effect, the
Surface Transportation Board issued its so-called Bottleneck
decisions, which addressed the prerogatives of shippers who
transport goods over bottleneck rail segments. See Docket
Nos. 41242 et al., Central Power & Light Co. v. Southern Pac.
Trans. Co., STB Decision of December 27, 1996 ("Bottleneck
I"), aff'd on reh'g, STB Decision of April 28, 1997 ("Bottleneck
II"). It has been a venerable principle of railroad rate
regulation that the reasonableness of a rate is to be assessed
on a "through basis"--that is to say, a shipper may challenge
only the rate of the origin-to-destination route as a whole,
rather than the reasonableness of rates charged for a particu-
lar segment of the route. See, e.g., Lousiville & Nashville
R.R. v. Sloss-Sheffield Steel & Iron Co., 269 U.S. 217, 234
(1925). In the Bottleneck cases, three shippers challenged
this longstanding principle. Each shipper sought to compel a
bottleneck rail carrier to establish separate local rates for a
bottleneck segment of a through route, which would then be
subject to separate reasonableness challenges before the
Board. Recognizing that the shippers' complaints raised
common issues that would affect broadly the railroad industry
and its customers, the Board sought public comment. The
respondent bottleneck carriers, supported by the railroad
industry, urged that the shippers' complaints be dismissed.
They argued that granting the shippers the relief sought, and
allowing separate rate challenges to bottleneck rail segments,
would severely damage the revenue adequacy of their indus-
try.
The Board defines a reasonable rate as one that allows a
railroad to recover the "Stand Alone Cost" (SAC) of providing
for the shipper's transportation.1 However, competition over
non-bottleneck segments of rail tends to drive rates for those
segments down toward marginal cost, a level often lower than
average total cost given the capital-intensive nature of the
railroad industry. If the Board were to permit shippers to
challenge separately the reasonableness of a bottleneck seg-
ment rate, the railroads argued, the through rate would
inevitably be lower than the overall cost to the carriers of
providing the transportation.
The Board's decision reaffirmed its longstanding policy that
a shipper ordinarily is only entitled to challenge the reason-
ableness of rates on a through basis, even where the route
contains a bottleneck segment. See Bottleneck I at 11-13.
But the Board created a significant exception to this princi-
ple. Where a bottleneck carrier cannot provide origin-to-
destination service for an entire through route, and where a
shipper secures a separate negotiated contract for the non-
bottleneck segment--as opposed to a common carriage rate
according to a published tariff--the shipper may separately
challenge a common carriage bottleneck segment rate. See
Bottleneck I at 13-14. The Board based this exception on its
interpretation of a provision of the Staggers Rail Act of 1980,
see 49 U.S.C. s 10709(c), which the Board concluded left it
without "rate reasonableness jurisdiction" over negotiated
contracts between shippers and rail carriers. Bottleneck I at
13. Then, on rehearing in Bottleneck II, the Board clarified
the implications of this "contract exception." It stated that,
where a shipper entered into a contract with a non-bottleneck
carrier, the Board if necessary would compel the bottleneck
carrier to establish a separately challengeable rate that could
be used to complete the transportation. See Bottleneck II at
__________
1 The SAC is the rate that a hypothetical railroad would charge
in order to recover the costs of constructing and operating a
railroad capable of accommodating the shipper's traffic. See Coal
Rate Guidelines, 1 I.C.C.2d 520, 554 (1985); see also Burlington N.
R.R. Co. v. STB, 114 F.3d 206, 212 (D.C. Cir. 1997).
9-10. Both the shippers and railroads petitioned for review
of the Bottleneck decisions.
While the Bottleneck cases were pending before the Eighth
Circuit, FMC sought to negotiate new contracts with each of
its rail carriers. It did reach new contracts with CSX for the
destination segment, but it was unable to forge a new agree-
ment with Union Pacific on the rates for the bottleneck origin
segment. FMC then requested that Union Pacific establish,
pursuant to its statutory common carrier obligations, see 49
U.S.C. s 11101(a), common carriage rates for its portion of
the route. Union Pacific ultimately acquiesced and estab-
lished rates for the origin segment. But there was a "kick-
er." Those rates could be used only in conjunction with the
common carriage rates that CSX had maintained for the
destination segment--not with the FMC-CSX contract rates.
FMC filed a petition before the Board protesting Union
Pacific's condition, arguing that the Bottleneck cases obligat-
ed Union Pacific to establish rates that could be used in
conjunction with FMC's contracts with CSX.
The Board agreed. See Finance Docket No. 33467, FMC
Wyoming Corp. v. Union Pacific R.R. Co., STB Decision of
Dec. 12, 1997 ("FMC Decision"). The Board explained that
Union Pacific's action was at odds with the contract policies it
established in its Bottleneck decisions:
In Bottleneck I, we ... determined that, notwithstanding
prior precedent generally restricting rate reasonableness
challenges to origin-to-destination rates, when the non-
bottleneck segment of a through route is covered by a
railroad/shipper contract, the rate covering the bottle-
neck segment is separably challengeable.... As we
further explained in Bottleneck II ... notwithstanding
[Union Pacific's] reluctance to have its [proposed] rate
separately challenged, once a shipper has a contract rate
for transportation to or from an established interchange,
the bottleneck carrier must provide a rate that permits
the shipper to utilize its contract with the non-bottleneck
carrier.
FMC Decision at 4 (internal citations omitted). The Board
accordingly ordered Union Pacific to establish common car-
riage rates that could be used by FMC in conjunction with
the FMC-CSX transportation contracts. Id. at 6.
Union Pacific petitioned for review. We held Union Pacif-
ic's petition in abeyance pending the Eighth Circuit's resolu-
tion of the Bottleneck cases. In MidAmerican Energy Co. v.
STB, 169 F.3d 1099 (8th Cir. 1999), the Eighth Circuit
affirmed most of the Board's conclusions in the Bottleneck
cases without reaching the merits of the so-called "contract
exception" policy. It concluded that the Bottleneck contract
exception policy was not ripe because none of the petitioning
shippers had secured a contract for a non-bottleneck seg-
ment. See id. at 1109.
II.
Although we now have before us actual negotiated con-
tracts for the non-bottleneck portions of routes, without which
the Eighth Circuit thought the controversy was not ripe, the
Board maintains the bottleneck contract exception policy
itself is still not ripe because it has not yet ruled on the
reasonableness of any bottleneck rates. All it has done is to
order Union Pacific to publish separate tariffs for the bottle-
neck portion of a bifurcated route which, then, can be chal-
lenged in proceedings before the Board.
Examining petitioner's argument carefully in light of the
Board's ripeness challenge, we note that petitioner claims
that to be ordered to publish separate bottleneck rates is
contrary to law because the only purpose of publication is to
permit an independent challenge to those rates' reasonable-
ness. Petitioner claims that procedure is inconsistent with
the statute and governing cases construing the statute. The
Board concedes--as it must--that petitioner certainly is enti-
tled to challenge its order directing publication. That chal-
lenge, however, would be a sterile exercise if it did not bring
into play the underlying Board Policy on which the order is
predicated. We think, therefore, the Board's contract excep-
tion is squarely before us. Yet the Board has a point.
Petitioner devotes much of its brief to the proposition that
permitting separate challenges to the reasonableness of pub-
lished bottleneck rates will jeopardize the adequacy of U.S.
railroad revenue--which is a statutory objective.2 We do not
see how that contention can possibly be ripe before the Board
has ever decided the reasonableness of any bottleneck rates.
Even if petitioner were correct in assuming that the very
possibility of separate challenges to bottleneck rates would
ineluctably put downward pressure on total railroad reve-
nues--an assumption which the Board correctly noted de-
pends upon "numerous imponderables," Bottleneck I at 12
n.21--we could not estimate the amount of diminished reve-
nue, and petitioner's argument perforce depends on the scale
of the financial impact. Accordingly, we have before us a ripe
controversy over the legality of the contract exception to the
bottleneck policy, but we must decide it without regard to
petitioner's concerns about revenue adequacy. Such a claim
will have to await Board rate rulings.
III.
A.
As we noted, the Board justified its exceptions-a partial
departure from the long-standing principle that the reason-
ableness of a railroad rate is to be judged on a "through"
basis-on the Staggers Rail Act of 1980, Pub. L. No. 96-448,
94 Stat. 1895. A provision of that Act states:
__________
2 See 49 U.S.C. s 10101(3) (articulating objective of "pro-
mot[ing] a safe and efficient rail transportation system by allowing
rail carriers to earn adequate revenues"); 49 U.S.C. s 10704(a)(2)
(In setting ratemaking policies, "[t]he Board shall maintain and
revise as necessary standards and procedures for establishing [ade-
quate] revenue levels."). In the event that the Bottleneck contract
exception leads to the calamitous revenue consequences that Union
Pacific and amicus Association of American Railroads predict, it is
conceivable that sufficient tension might exist between the Board's
revenue-adequacy obligations and the language of section 10709(c)
to require the Board to reassess its Bottleneck contract holdings.
A contract that is authorized by this section, and trans-
portation under such contract, shall not be subject to this
part, and may not be subsequently challenged before the
Board or in any court on the grounds that such contract
violates a portion of this part.
49 U.S.C. s 10709(c)(1). The Board, in the Bottleneck cases,
construed this provision to mean that it is "without rate
reasonableness jurisdiction over the rates of any rail trans-
portation provided by contract." Bottleneck I, at 13. Where
one of the two segments of a route is governed by a contract
rate, the Board reasoned, it could not assess the reasonable-
ness of the rate as a whole, as to do so would "indirectly
result in review of the contract rate." Id. Petitioner quar-
rels with the Board's interpretation of this section--particu-
larly objecting to the Board's use of the term "jurisdiction."
Union Pacific maintains that the statute merely bars the
Board from regulating the terms of shipper-carrier contracts;
it does not preclude the Board from continuing to assess the
reasonableness of the entire through rate. By so doing, the
Board would only be "taking the contract rate into account,"
not regulating its terms.
We think the statute can be read either way; it is ambigu-
ous as to the scope of the Board's authority ("authority"
seems a better term than "jurisdiction" in this setting) over a
contract, which is why the Board relies on Chevron U.S.A.
Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837
(1984), to support its interpretation of the statute. Petitioner
never places its challenge to the Board's statutory interpreta-
tion in the Chevron framework, but implicitly suggests that
the Board's interpretation is unreasonable (even if the statute
is ambiguous), because it is inconsistent with the Board's
interpretation of other jurisdictional statutory provisions and
court cases sustaining those interpretations. Union Pacific
relies heavily on Great Northern Railway Co. v. Sullivan, 294
U.S. 458 (1935). In Great Northern, a shipper challenged the
reasonableness of the rate of an American rail carrier's
segment of an international through route. The Supreme
Court rejected the shipper's claim; even though the ICC3
lacked true "jurisdiction" over the Canadian segment of the
through route under the Interstate Commerce Act,4 the ship-
per could not separately challenge the domestic carrier's rate.
See id. at 463; see also Canada Packers, Ltd. v. Atchison,
Topeka & Santa Fe Ry. Co., 385 U.S. 182, 183-84 (1966)
("[W]here a carrier performing transportation within the
United States enters into a joint through international rate
covering transportation in the United States and abroad, the
Commission does have jurisdiction to determine the reason-
ableness of the joint through rate and to order the carrier
performing the domestic service to pay reparations in the
amount by which that rate is unreasonable."). Union Pacific
argues that, just as the Board has authority to take into
account an international portion of a route over which it has
no jurisdiction in determining the reasonableness of a
through rate, the Board must consider a contract rate in
making a through rate reasonableness determination despite
its inability to regulate the contract itself under section
10709(c).
The Board has some difficulty in reconciling its construc-
tion of section 10709(c) with its application of the general
jurisdictional provision at issue in Great Northern. It might
well be thought that the Board has even less authority over
the Canadian portion of a through shipment (really outside of
its "jurisdiction") than it does over a domestic contract, and
therefore it would be more justified for the Board to allow a
shipper to protest the domestic portion of a through interna-
tional rate than a bottleneck rate. But as the intervenor
points out, the situations are quite different economically.
The Great Northern holding--and the broader principle that
the reasonableness of rates is to be assessed on a through
__________
3 The ICC is the predecessor agency to the STB. See ICC
Termination Act of 1995, Pub. L. No. 104-88, 109 Stat. 803.
4 See Interstate Commerce Act of 1887, Pub. L. No. 49-104, 24
Stat. 379. The current provision providing for the Board's jurisdic-
tion is 49 U.S.C. s 10501(a)(2) (Board's jurisdiction applies only "to
transportation in the United States.").
basis--was based on an understanding that "[t]he shipper's
only interest is that the charge shall be reasonable as a
whole." Great Northern, 294 U.S. at 463; see also Louisville
& Nashville R.R. Co. v. Sloss-Sheffield Steel & Iron Co., 269
U.S. 217, 234 (1925). This is no longer the case. By permit-
ting a shipper to enter into contracts that are beyond review
of the Board, the Staggers Act entitles a contracting shipper
to--as FMC puts it--"the benefit of its bargain." Were its
position to prevail, Union Pacific would be in a position to
recover for itself the "benefit" of FMC's bargain with CSX, as
it could set a rate that allowed it to obtain the difference
between a reasonable through rate and the FMC-CSX con-
tract price.
To be sure, that is not a point that the Board itself made.
But the Board did rely on the recent Staggers Act as
justifying its new policy and we think intervenors' explanation
is implicit in the Board's admittedly terse rationale. In any
event, the Board was entitled to draw the inference that
Congress, in specifically addressing the contract situation,
wished a different result than the old ICC had reached with
respect to international transportation.
Nor is the Board's position in the Bottleneck cases under-
mined by our decision in Ford Motor Co. v. ICC, 714 F.2d
1157 (D.C. Cir. 1983). In Ford a shipper challenged before
the ICC a joint rate established by two railroad carriers.
After the ICC issued a statement expressly encouraging
settlement of rate reasonableness challenges because of an
"extraordinary case load bulge," the shipper negotiated an
agreement with one of the railroads giving the shipper an
"allowance" which would end automatically "if the ICC or-
dered a reduction of the joint rate." Id. at 1166-67. In light
of the settlement, the shipper dropped the railroad from its
complaint before the ICC. The ICC granted the remaining
railroad's motion to dismiss the case, concluding that it no
longer had jurisdiction because the settling railroad had been
a "necessary party" to the shipper's rate challenge. The
Commission claimed that it was "impossible ... to determine
the reasonableness of a joint rate or market dominance in the
absence of cost evidence for all participating railroads." Id.
at 1168 (internal quotations omitted). In rejecting the ICC's
claim, we expressed incredulity that the ICC could make this
claim of "impossibility" in light of the international rate cases
like Great Northern, where "the Commission can and does
determine ... the reasonableness of a joint rate though all
participants are not before the ICC as defendants." Id. at
1169-70.
As the Board correctly observes, Ford reasonably can be
distinguished from this case. See Bottleneck I at 14 n.24.
For one thing, our decision in Ford was plainly influenced by
the inconsistent positions of the ICC in that case. After
expressly encouraging shippers to settle their rate dispute,
the ICC punished a shipper for doing precisely that. See id.
at 1169. Ford also did not involve a challenge to a contract
rate, but instead to a joint rate where one of the carriers
subsequently entered into a side settlement with a shipper.
This is a meaningful distinction, as no separate contract rate
was being "reviewed" by the ICC in Ford. Indeed, the
settlement provided that, if the joint rate were found unrea-
sonable by the Board, the reduced joint rate--rather than the
settlement--would apply. More fundamentally, although
Ford was decided after the Staggers Act it simply did not
address the language of section 10709(c) relied on by the
Board in the Bottleneck cases.5
__________
5 For quite similar reasons, Union Pacific's reliance on the
ICC's decision in Metropolitan Edison Co. v. Conrail, 5 I.C.C.2d
385 (1989), is misplaced. In Met Edison, as in Ford, a shipper
challenged a joint rate where the shipper had entered into a
settlement with one of its rail carriers, not a through rate where
one factor of the transportation was a contract rate from the outset.
And while the ICC did make a general statement in that decision
that its conclusion was not altered by the contractual provisions of
the Staggers Act, see id. at 409 n.32, Met Edison did not specifically
consider the language of section 10709(c). Of course, even if we
were to accept Union Pacific's characterization of this footnote in
Met Edison as a prior interpretation of section 10709(c), the Board
is entitled to change that position if it provides a reasoned explana-
tion for doing so, see Amax Land Co. v. Quarterman, 181 F.2d.
1356, 1365 & n.6 (D.C. Cir. 1999)--which we believe the Board did
Union Pacific also argues that the Bottleneck contract
exception is inherently inconsistent with other parts of the
Bottleneck decisions. Union Pacific points to the Board's
conclusion that where a bottleneck carrier can provide origin-
to-destination service for the entire through route it cannot
be forced to interchange with another carrier--even if the
shipper has secured a contract for the non-bottleneck seg-
ment. Bottleneck I at 7-8; Bottleneck II at 6-7. How can
this conclusion, Union Pacific asks, be reconciled with the
Board's "jurisdiction-stripping" interpretation of section
10709(c)? This is an inconsistency, in our view, born not of
the Board's Bottleneck opinion, but of the Board's separate
statutory obligation to protect a bottleneck shipper's "long
haul" where it can provide origin-to-destination service, see 49
U.S.C. s 10705(a)(2); see also Chicago, Milwaukee, St. Paul
& Pac. R.R. v. United States, 366 U.S. 745, 749-50 (1961).
The Board offers a lengthy and well-reasoned explanation of
the intersection of the conflicting mandates of its contractual
and long-haul provisions, see Bottleneck II at 6-9, and we
think it resolved the tension between these mandates in a
reasonable fashion.
We therefore conclude that, while the objections Union
Pacific raises to the Bottleneck contract exception policy are
well-presented, none of them is persuasive. We affirm the
Board's interpretation of section 10709(c).
B.
We find little merit in Union Pacific's remaining arguments
that the Board nonetheless exceeded its authority when it
compelled Union Pacific to establish rates for the bottleneck
segment that could be used in combination with the FMC-
CSX transportation contracts. In Bottleneck II the Board
discussed a bottleneck carrier's obligations where a shipper
__________
in this case. See Bottleneck I at 13 (explaining its interpretation of
section 10709(c)); see also id. at 14 (distinguishing Met Edison).
has entered into a separate contract with the non-bottleneck
rail carrier:
In those circumstances, the bottleneck carrier cannot
insist on only providing joint-rate service and, as a result,
refuse service when it is unable to make those rates;
instead, its common carrier obligation requires it to
provide a rate necessary to complete the transportation.
Bottleneck II at 10. Union Pacific responds that, unlike the
hypothetical carrier discussed in Bottleneck II, it has indeed
offered rates that "complete FMC's transportation." The
Board was right to reject this claim as advancing a distinction
without a difference. Just as the bottleneck carrier effective-
ly negates a shipper-carrier contract by refusing to offer
anything other than joint-rate service, Union Pacific sought to
override the FMC-CSX contracts. We agree with the Board
that Bottleneck II precludes Union Pacific from effectively
"thwart[ing] the right of FMC and its destination rail carriers
to make separate transportation contracts in this way."
FMC Decision at 5.
Union Pacific objects that the Board's order--and the
Board's policy announced in Bottleneck II--violates its statu-
tory right to "rate and route initiative," see 49 U.S.C.
s 10701(c). We do not think this provision helps Union
Pacific. As the Board noted in Bottleneck II, these rate-
setting prerogatives are shared by bottleneck and non-
bottleneck carriers alike, Bottleneck II at 9-10. Were we to
grant Union Pacific the relief it seeks, it would merely mean
that CSX's rate-setting rights would be undermined, rather
than Union Pacific's. Moreover, to grant Union Pacific "rate
initiative" in this instance would have required the Board to
override the very contract that it is without authority to
review under section 10709(c). There may well be tension
between these two provisions, but we think the Board proper-
ly resolved that tension in favor of solicitude for the shipper
and non-bottleneck carrier's contract--particularly since the
non-bottleneck carrier also shares the "rate initiative" that
Union Pacific believes justifies it unilaterally to override the
FMC-CSX contract.
* * * *
As our colleagues in the Eighth Circuit noted in affirming
the Bottleneck cases' non-contract holdings, the Board is
required to implement statutes that express competing and
occasionally conflicting policy objectives. See MidAmerican
Energy Co., 169 F.3d at 1104-05. We think that the Board
adequately reconciled the particular statutory tensions raised
by the Bottleneck cases; confronting the unenviable task of
balancing the rail carriers' rate and route prerogatives and
the shippers' contract rights, the Board produced what is, on
balance, a reasonable policy. Cf. Bottleneck II at 14 (Morgan,
Chairman, commenting) ("Rather than choosing between
the[ ] two diametrically opposed positions [of the railroads
and shippers]--a result which the statute did not envision--
our decisions in these bottleneck cases have concluded that
Congress intended that these goals be implemented in a
balanced and complementary way."). We deny the petition.
So ordered.