United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 9, 2012 Decided April 13, 2012
No. 11-1269
MANUFACTURERS RAILWAY COMPANY,
PETITIONER
v.
SURFACE TRANSPORTATION BOARD AND UNITED STATES OF
AMERICA,
RESPONDENTS
On Petition for Review of an Order
of the Surface Transportation Board
Paul A. Cunningham argued the cause for petitioner.
With him on the briefs was Richard B. Herzog.
Virginia Strasser, Attorney, Surface Transportation
Board, argued the cause for respondents. With her on the
brief were Robert B. Nicholson and Robert J. Wiggers,
Attorneys, U.S. Department of Justice, Raymond A. Atkins,
General Counsel, Surface Transportation Board, and Evelyn
G. Kitay, Associate General Counsel, Surface Transportation
Board.
Before: HENDERSON, GRIFFITH, and KAVANAUGH,
Circuit Judges.
2
Opinion for the Court filed by Circuit Judge
KAVANAUGH.
KAVANAUGH, Circuit Judge: To abandon or discontinue
service over a railroad line, a railroad must first obtain
authorization from the Surface Transportation Board. As a
condition of Board authorization, the railroad must pay
dismissed employees sometimes-hefty dismissal allowances.
But the Board has long maintained an exception under which
it does not require a railroad to pay dismissal allowances
when the railroad abandons or discontinues service over its
entire system. We will call this the Board’s “entire-system
exception.”
Here, Manufacturers Railway Company obtained
authorization from the Board to discontinue service over its
entire system. But the Board did not apply its entire-system
exception; instead, the Board required Manufacturers to pay
dismissal allowances to its dismissed employees. We
conclude that the Board did not reasonably explain and justify
the departure from its longstanding entire-system exception.
We thus find the Board’s decision arbitrary and capricious
under the Administrative Procedure Act. We grant the
petition for review, vacate the Board’s decision, and remand
for further proceedings.
I
Congress has assigned the Surface Transportation Board
– an independent federal agency – to regulate transportation
by rail carriers. See 49 U.S.C. § 10501; see also 49 U.S.C.
§ 10102(5) (“‘rail carrier’ means a person providing common
3
carrier railroad transportation for compensation”). 1 When a
rail carrier seeks to abandon a railroad line or discontinue
service over a railroad line, it must first obtain authorization
from the Board. See 49 U.S.C. § 10903; 49 U.S.C. § 10502.2
When granting authorization, the Board is required by statute
to impose conditions to protect adversely affected employees.
See 49 U.S.C. § 10903(b)(2); 49 U.S.C. § 10502(g). Of
primary relevance here, the Board generally requires a
railroad to pay dismissed employees their monthly salaries,
referred to as “dismissal allowances,” for up to six years. See
Oregon Short Line Railroad, 360 I.C.C. 91, 98-103 (1979).
1
When we use the term “rail carrier” in this opinion, we are
using it as defined by the statute.
2
“Abandon” and “discontinue” have distinct meanings in this
context. In general, to “abandon” a line involves ceasing to operate
a line, with no intention of resuming operation of that line. Once a
line is abandoned, the Board loses jurisdiction over that line. To
“discontinue” service over a line involves ceasing to operate a line
for an indefinite period of time, with the option of resuming
operation of that line in the future. When service over a line has
been discontinued, the Board retains jurisdiction over that line. See
New York Cross Harbor Railroad v. STB, 374 F.3d 1177, 1182 n.5
(D.C. Cir. 2004); National Ass’n of Reversionary Property Owners
v. STB, 158 F.3d 135, 137 n.1 (D.C. Cir. 1998) (citing Preseault v.
ICC, 494 U.S. 1, 5 n.3 (1990)); see also 49 C.F.R. § 1152.29(e)(2)
(“A railroad that receives authority from the Board to abandon a
line . . . shall file a notice of consummation with the Board to
signify that it has exercised the authority granted and fully
abandoned the line (e.g., discontinued operations, salvaged the
track, canceled tariffs, and intends that the property be removed
from the interstate rail network).”); Consolidated Rail Corp., 1
I.C.C. 2d 284 (1984) (after abandonment, a railroad can operate a
line in private carriage, but is not subject to Board jurisdiction).
4
But the Board has maintained a longstanding exception
under which it does not order payment of employee dismissal
allowances when a rail carrier abandons or discontinues
service over its entire system. See, e.g., Wellsville, Addison &
Galeton Railroad Corp., 354 I.C.C. 744 (1978); Northampton
& Bath Railroad Co., 354 I.C.C. 784 (1978). In cases of
entire-system abandonment or discontinuance, the Board has
reasoned that no operating rail carrier remains that could use
revenue from other railroad lines to help pay the employee
dismissal allowances. See Northampton, 354 I.C.C. at 785-
86. 3
II
Manufacturers Railway Company operated two railroad
lines in St. Louis, Missouri. Manufacturers mainly served the
Anheuser-Busch brewery there. By 2010, the railroad lines
had become unprofitable.
In March 2011, Manufacturers requested authorization
from the Surface Transportation Board to discontinue service
over the two lines, which constituted Manufacturers’ entire
system. Unions representing Manufacturers’ employees
asked the Board to order payment of employee dismissal
allowances if the request was granted.
3
The Board has recognized two exceptions to the entire-
system exception: when there is “(1) a corporate affiliate that will
continue substantially similar rail operations; or (2) a corporate
parent that will realize substantial financial benefits over and above
relief from the burden of deficit operations by its subsidiary
railroad.” Mississippi & Skuna Valley Railroad, LLC, No. AB
1089X, slip op. at 3 (STB Jan. 20, 2012); see also Northampton,
354 I.C.C. at 786. Neither exception is at issue in this case.
5
The Board authorized Manufacturers to discontinue
service over its entire system and ordered Manufacturers to
pay dismissal allowances to its dismissed employees –
notwithstanding its longstanding entire-system exception.
The Board reasoned the entire-system exception does not
apply when “a carrier seeks an entire-system discontinuance
over lines that it not only operates but also owns.”
Manufacturers Railway Co., No. AB 1075X, slip op. at 5
(STB July 12, 2011).
Manufacturers petitioned for review in this Court,
arguing that the Board departed without justification from its
longstanding entire-system exception. This Court reviews
Board decisions under the Administrative Procedure Act’s
arbitrary and capricious standard of review. See Village of
Barrington v. STB, 636 F.3d 650, 670 (D.C. Cir. 2011); 5
U.S.C. § 706(2)(A). Put simply, the APA requires that an
agency’s exercise of its statutory authority be reasonable and
reasonably explained. This Court will set aside agency action
if, among other things, the agency “reverses its position in the
face of a precedent it has not persuasively distinguished.”
New York Cross Harbor Railroad v. STB, 374 F.3d 1177,
1181 (D.C. Cir. 2004) (citation and brackets omitted).
III
A
Manufacturers argues that the Board should have applied
its longstanding entire-system exception and exempted
Manufacturers from payment of employee dismissal
allowances.
In the past, the Board has exempted rail carriers from
paying employee dismissal allowances when the carriers
6
abandoned or discontinued service over their entire system.
The general theory behind the entire-system exception is
fairly easy to explain: A company that is abandoning or
discontinuing service over one line but continuing rail carrier
operations on other lines can use revenue from those other
lines to fund payment of the employee dismissal allowances.
But a company without any continuing rail carrier operations
does not have such revenue to fund the dismissal allowances.
See, e.g., Northampton & Bath Railroad Co., 354 I.C.C. 784,
785-86 (1978); Simmons v. ICC, 697 F.2d 326, 336 (D.C. Cir.
1982); Railway Labor Executives’ Ass’n v. ICC, 735 F.2d
691, 697 (2d Cir. 1984).
In this case, as in other cases where a railroad has
abandoned or discontinued service over its entire system, no
operating rail carrier remains to earn revenue from other lines
and thereby fund the employee dismissal allowances.
Therefore, this case seems to fall squarely within the rationale
that the Board has long used to justify the entire-system
exception. Yet the Board here rather inexplicably failed to
apply the exception to Manufacturers; instead, it ordered
Manufacturers to pay employee dismissal allowances on the
ground that Manufacturers retained ownership of its lines.
But in the past, the Board has ordered payment of employee
dismissal allowances only when the company maintained rail
carrier operations that would generate revenue to fund the
employee dismissal allowances. 4
4
The Board also suggested that its decision to impose
employee dismissal allowances on Manufacturers was justified by
the fact that Manufacturers would remain subject to the Board’s
jurisdiction (because Manufacturers would still own the lines,
among other reasons). But the key point under the Board’s
precedents is that Manufacturers would not be earning revenue
from other rail carrier operations to fund the employee dismissal
7
It is true that Manufacturers remains in existence as an
ongoing company, even though it no longer provides service
as a rail carrier. But that has been true in other cases where
the Board has applied the entire-system exception and
declined to require payment of employee dismissal
allowances. In other words, the Board has applied the entire-
system exception not just in cases where a company was
going out of business, but also in cases such as this where a
company remained in business but had no ongoing rail carrier
operations. So the mere fact that Manufacturers remains in
business does not justify the Board’s failure to apply the
entire-system exception in this case. See Sierra Pacific
Industries, No. AB-512X, slip op. at 8 (STB Feb. 25, 2005)
(railroad planned to continue business as a private carrier;
Board did not order employee dismissal allowances); Almono
LP, No. AB-842X, slip op. at 2, 4 (STB Jan. 13, 2004)
(railroad intended to continue business as a private carrier;
Board did not order employee dismissal allowances);
Wellsville, Addison & Galeton Railroad Corp., 354 I.C.C.
744, 746 (1978) (railroad had business leasing boxcars;
Board’s predecessor agency did not order employee dismissal
allowances); see also Greenville County Economic
Development Corp., No. AB-490 (Sub-No. 1X), slip op. at 1,
4 (STB Oct. 12, 2005) (railroad sought an entire-system
discontinuance over lines that it owned; Board did not order
employee dismissal allowances). 5
To sum up, the Board failed to reasonably explain and
justify its deviation from its longstanding entire-system
allowances. The fact that Manufacturers would remain subject to
the Board’s jurisdiction does not alter that central point.
5
For purposes of the entire-system exception, the Board has
indicated that private carriage – as distinguished from common
carriage – does not qualify as ongoing rail carrier operations of the
abandoning or discontinuing rail carrier.
8
exception. Under the APA, the Board’s decision is therefore
arbitrary and capricious. We must vacate the Board’s
decision.
B
Our discussion thus far has focused on whether the Board
reasonably applied its entire-system exception to this case.
Both Manufacturers and the Board – the parties before this
Court – have assumed the validity of the entire-system
exception. But several railroad worker unions also
participated in this case when it was argued before the Board,
and the unions questioned the validity of the entire-system
exception. The unions broadly claimed that the statute does
not permit the Board’s entire-system exception, no matter
how longstanding it might be. The statute provides: “The
Board shall require as a condition of any abandonment or
discontinuance under this section provisions to protect the
interests of employees.” 49 U.S.C. § 10903(b)(2); see also 49
U.S.C. § 10502(g). According to the unions, in the face of a
statutory command that the Board shall impose employee
protective conditions such as employee dismissal allowances
in any abandonment or discontinuance, the Board has
nonetheless created an exception. The unions contended that
the statutory text requires employee dismissal allowances in
all cases of abandoned or discontinued lines, and that the
entire-system exception was therefore invalid. The unions
prevailed before the Board on narrower grounds, and they are
not parties to the case in this Court. This textual argument
thus has not been presented to us.
9
***
We grant the petition for review, vacate the Board’s
decision, and remand for further proceedings.
So ordered.