Assn Amer RR v. STB

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 8, 1998 Decided June 30, 1998

No. 97-1020

Association of American Railroads,

Petitioner

v.

Surface Transportation Board and

United States of America,

Respondents

Western Coal Traffic League, et al.,

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 Louis P. Warchot and Kenneth P.
Kolson.

Thomas J. Stilling, Attorney, Surface Transportation
Board, argued the cause for respondents. With him on the
brief were Joel I. Klein, Assistant Attorney General, U.S.
Department of Justice, Robert B. Nicholson and John P.
Fonte, Attorneys, Henri F. Rush, General Counsel, Surface
Transportation Board, and Ellen D. Hanson, Deputy General
Counsel.

William A. Slover, C. Michael Loftus, Robert D. Rosen-
berg, Andrew P. Goldstein, Nicolas J. DiMichael and Fredric
L. Wood were on the joint brief for intervenors Western Coal
Traffic League, et al.

Before: Wald, Williams and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: Petitioner challenges Surface Trans-
portation Board guidelines for determining the reasonable-
ness of railroad rates in small cases. Finding the challenge
unripe, we dismiss the petition.

I

For much of the nineteenth century, railroads possessed
sufficient market power to set rates that were often unjust
and unreasonable. See Western Coal Traffic League v. Unit-
ed States, 719 F.2d 772, 775 (5th Cir. 1983) (en banc). Par-
tially in response to this problem, in 1887 Congress created
the Interstate Commerce Commission, which tightly con-
trolled rates for almost ninety years and prohibited railroads
from responding freely to market forces. See id. As a result
of this regulation and the rise of shipping alternatives such as
trucks in the mid-twentieth century, railroads increasingly
experienced inadequate earnings, struggled to stay solvent,
and often went bankrupt. See Western Coal Traffic League
v. United States, 694 F.2d 378, 384 (5th Cir. 1982), rev'd en
banc in part on other grounds, 719 F.2d 772.

Responding to the continuing decline of railroads, Congress
again acted, this time significantly deregulating the railroad
industry through the Railroad Revitalization and Regulatory

Reform Act of 1976, Pub. L. No. 94-210, 90 Stat. 31 (codified
as amended in scattered sections of 45 and 49 U.S.C.), and
the Staggers Rail Act of 1980, Pub. L. No. 96-448, 94 Stat.
1895 (codified as amended in scattered sections of 45 and 49
U.S.C.). Recognizing that railroads must often charge rates
well above their variable costs to compensate for their very
high fixed costs, these two acts prohibited the ICC, now the
Surface Transportation Board, from regulating rates unless
the railroad has "market dominance," Pub. L. No. 94-210,
s 202(b), 90 Stat. at 35 (codified as amended at 49 U.S.C.A.
s 10707(d)(1)(A) (1997)), meaning that railroads must have at
least charged a rate with a revenue-to-variable-cost (R/VC)
ratio higher than a specified figure--starting in 1980 at 160%
and resting currently at 180%. Pub. L. No. 96-448, s 202, 94
Stat. at 1900 (codified as amended and reordered at 49
U.S.C.A. s 10707(d)(1)(A)); see also Burlington N. R.R. Co.
v. ICC, 985 F.2d 589, 595 (D.C. Cir. 1993) (discussing Con-
gress' deregulation efforts). Congress further directed that,
"[i]n determining whether a rate established by a rail carrier
is reasonable," the agency must "recognize the policy ... that
rail carriers shall earn adequate revenues." Pub. L. No.
96-448, s 201(a), 94 Stat. at 1899 (codified as amended and
reordered at 49 U.S.C.A. s 10701(d)(2)). Although Congress
wanted to ensure revenue adequacy for railroads, it was also
concerned about shippers, urging the agency "to maintain
reasonable rates where there is an absence of effective com-
petition." Id. s 101(a), 94 Stat. at 1897 (codified and reord-
ered at 49 U.S.C.A. s 10101(6)).

The ICC struggled for many years to develop guidelines
for assuring the reasonableness of rates charged by railroads
with market dominance. After some experimentation, see,
e.g., Iowa Pub. Serv. Co. v. ICC, 643 F.2d 542, 548 (8th Cir.
1981) (rejecting ICC rule allowing railroads to charge low-
elasticity shippers 7% above full cost), the agency adopted a
standard known as "Ramsey pricing," which allows railroads
to charge markups in inverse proportion to shippers' demand
elasticities, i.e. to charge "captive shippers"--those customers
unable to use alternative forms of transportation--rates far
above variable cost in order to compensate for their inability

to charge high rates to shippers who can easily choose trucks
or other forms of transportation. See Burlington N. v. ICC,
985 F.2d at 595-96. Because accurately measuring elastici-
ties is difficult, however, the agency also adopted a system
called Constrained Market Pricing ("CMP") to set limits on
how high above variable cost railroads can charge their
captive shippers. See id. at 596. For purposes of this case,
the most important of these limits--the "stand-alone cost
constraint" ("SAC")--prohibits a carrier's rates from exceed-
ing "the rates a hypothetical 'stand-alone railroad' would have
to charge in order to recover the costs of building a rail
system to carry the complaining shipper's traffic and earn a
reasonable return." Burlington N. R.R. Co. v. STB, 114 F.3d
206, 212 (D.C. Cir. 1997).

Although the agency has consistently described the CMP/
SAC constraint as the " 'preferred and most accurate proce-
dure available for determining the reasonableness' of rates,"
Burlington N. v. ICC, 985 F.2d at 596 (quoting McCarty
Farms, Inc. v. Burlington N., Inc., 3 I.C.C.2d 822, 840
(1987)), it has also recognized that developing a full SAC
study is expensive and therefore inappropriate for cases
involving relatively small amounts of money. For this reason,
the agency has spent over a decade searching for an alterna-
tive to SAC for use in small cases. It originally tried using a
standard called R/VC comp, which compares the R/VC
of the challenged traffic to the average R/VC charged by
other railroads for similar traffic. But this court rejected
R/VC comp, holding that the agency had failed to justify using
it to strike a particular rate, especially since "employed
regularly and repeatedly, it will reduce rates to the lowest
R/VC used in the comparison group." Id. at 597. The
agency therefore abandoned the formula as a bright-line test
of reasonableness and resumed its search for another method.
Apparently becoming impatient with this search, Congress
directed the Board to establish by January 1997 "a simplified
and expedited method for determining the reasonableness of
challenged rail rates in those cases in which a full stand-alone
cost presentation is too costly, given the value of the case."

ICC Termination Act of 1995, Pub. L. No. 104-88, Title I,
s 102(a), 109 Stat. 803, 810 (codified at 49 U.S.C.A.
s 10701(d)(3)).

Responding to Congress' directive, the STB issued the
guidelines challenged in this case. Rate Guidelines--Non-
Coal Proceedings, Ex Parte No. 347 (Sub-No. 2), 1996 WL
741358 (STB served Dec. 31, 1996) ("December Decision").
Because the Board concluded that no one benchmark stand-
ing alone would suffice, the guidelines measure the reason-
ableness of rates in small cases by comparing the challenged
rate to three ratios: R/VC comp; R/VC %6E180, which measures
the average markup charged by the challenged railroad on all
captive traffic; and RSAM, which represents the average
markup over variable cost that the railroad would have to
charge captive traffic to recover total costs and a reasonable
profit. The Board found that this approach adequately bal-
ances the needs of shippers and railroads and explained how
it would employ the three ratios:

While none of the benchmarks is perfect, we are satisfied
that each is instructive for a simplified rate reasonable-
ness analysis. Taken together, they allow us to consider
each of the relevant statutory factors. At the same time,
each measure serves as a check on the other two. More-
over, ... the three benchmarks are only the starting
point for our analysis. They can and should be supple-
mented, as appropriate, with any particularized evidence
that would qualify or modify what one or more bench-
marks might otherwise indicate. We are confident that a
careful analysis of these three benchmarks, together with
whatever supplementary evidence is provided in a case,
should enable us to meet our modest objective--to make
at least a rough call as to rate reasonableness in those
cases where a more precise determination is not possible.

Id. at *21.

In issuing these guidelines, the Board rejected petitioner's
argument that whenever complaining shippers use the three-
ratio approach, railroads should be able to defend by present-
ing a simplified SAC analysis. Noting that it had already
rejected petitioner's computer model for producing a simpli-

fied SAC figure--in a test the model had approved a rate
with an R/VC exceeding 5,000%, see id. at *5--the Board
concluded that since shippers may only use the three-ratio
approach when a SAC analysis would be economically infeasi-
ble, see id. at *25-26 (describing when shippers may use the
three ratios), railroads should not then be able to "transform
the case into a SAC case," id. at *28. "In any event," the
Board said, "a SAC presentation by the defendant railroad(s)
would not be persuasive, because the defendant railroad lacks
the incentive to seek out the least-cost most-efficient stand-
alone service--the objective of the SAC test." Id.

After the Board rejected its petition for rehearing, Rate
Guidelines--Non-Coal Proceedings, Ex Parte No. 347 (Sub-
No. 2), 1997 WL 586968 (STB served Sept. 24, 1997), petition-
er sought review in this court, arguing that by promulgating
what it refers to as "vague and unilluminating" guidelines, the
Board failed to satisfy Congress' command to establish a
"simplified and expedited method for determining the reason-
ableness of challenged rail rates" in small cases. Petitioner
also contends that to the extent the guidelines will have any
effect on rates they will undermine revenue adequacy and
that the Board erred by prohibiting railroads from ever
introducing SAC evidence.

II

Before we can consider the merits of the petition, we must
determine whether it is justiciable--i.e., whether petitioner
has standing and whether its claims are ripe for review.
Contrary to the situation we face in most cases, here it is
petitioner arguing that the petition may not be reviewable,
suggesting not only that it is "unclear" whether it has been
"aggrieved" by the guidelines, Brief for Petitioner at 31
(citing 28 U.S.C. s 2344 (1994) (only a "party aggrieved" may
obtain review of a Board order)), but also that its claims are
"arguably" not ripe for review, see id. at 32. Also unlike the
typical case, the Board contends that petitioner has standing
and that the petition is ripe, arguing that petitioner has
raised a "purely legal question." Brief for Respondents at 22.

The counterintuitive positions of the parties actually make
sense. Because parties must petition for review of Board
orders within sixty days, see 28 U.S.C. s 2344, and because
we generally refuse to allow late petitions even when petition-
ers argue their claims were unripe during the original sixty-
day period, see Eagle-Picher Indus., Inc. v. U.S. EPA, 759
F.2d 905, 914 (D.C. Cir. 1985) ("[I]f there is any doubt about
the ripeness of a claim, petitioners must bring their challenge
in a timely fashion or risk being barred."), petitioner seeks to
protect itself by obtaining either immediate review of the
guidelines, or a statement by this court that, though its claims
are not currently justiciable, it may file another petition
within sixty days of the date when the claims ripen, see
Baltimore Gas & Elec., Co. v. ICC, 672 F.2d 146, 149 (D.C.
Cir. 1982) ("A time limitation on petitions for judicial review,
it should be apparent, can run only against challenges ripe for
review."). The Board, apparently believing that its guidelines
have a better chance of surviving a judicial challenge in the
absence of a specific application, and concerned about the
burden that deferral would impose upon small shippers forced
to defend the guidelines in future cases, argues that we
should review petitioner's claims now.

Setting aside the question of whether a party acknowl-
edging it may not be aggrieved and introducing no evidence
demonstrating actual injury can ever have standing, we limit
our analysis to the petitioner's alternate argument that the
case is unripe for review. See Ohio Forestry Ass'n, Inc. v.
Sierra Club, 118 S. Ct. 1665, 1670 (1998) (deciding case on
ripeness grounds even though petitioner argued the case was
nonjusticiable on both standing and ripeness grounds); Loui-
siana Envtl. Action Network v. Browner, 87 F.3d 1379, 1385
(D.C. Cir. 1996) ("Because issues of standing, ripeness, and
other such 'elements' of justiciability are each predicate to
any review on the merits, a court need not identify all such
elements that a complainant may have failed to show in a
particular case."). The ripeness requirement "prevent[s] the
courts, through avoidance of premature adjudication, from
entangling themselves in abstract disagreements over admin-
istrative policies, and also [ ] protect[s] the agencies from

judicial interference until an administrative decision has been
formalized and its effects felt in a concrete way by the
challenging parties." Abbott Labs. v. Gardner, 387 U.S. 136,
148 (1967). To determine whether claims are ripe, we apply a
two-part test, evaluating "the fitness of the issues for judicial
decision" as well as "the hardship to the parties of withhold-
ing court consideration." Id. at 149.

Beginning with the first question, we ask whether the court
would benefit from an actual application of the challenged
agency action. See Ohio Forestry Ass'n, 118 S. Ct. at 1670
(court must consider "whether the courts would benefit from
further factual development of the issues presented"); Loui-
siana Envtl. Action Network, 87 F.3d at 1385 (noting that the
"classic institutional reason" for postponing review is the
"need to wait for 'a rule to be applied [to see] what its effect
will be' ") (quoting Diamond Shamrock Corp. v. Costle, 580
F.2d 670, 674 (D.C. Cir. 1978)). We have little doubt that
judicial resolution of all of petitioner's challenges would bene-
fit from a concrete case.

Petitioner first argues that by failing to indicate how the
three ratios would be employed in any particular case to
review a challenged rate, the Board violated Congress' com-
mand to establish a method for determining the reasonable-
ness of rates in small cases. Noting that ratemaking is "not a
precise science," the Board responds that the guidelines
"establish a general framework" which the Board will use to
balance the interests of carriers and shippers. Since the
Board has not yet applied the guidelines to invalidate any
specific rate--it applied the guidelines only once, finding that
the challenged rate was reasonable, see South-West R.R. Car
Parts Co. v. Missouri Pacific R.R. Co., 1996 WL 741365 (STB
served Dec. 31, 1996)--we have no way of knowing whether
the guidelines will provide concrete guidance to railroads or,
as petitioners argue, are simply "mush," Paralyzed Veterans
of Am. v. D.C. Arena, L.P., 117 F.3d 579, 584 (D.C. Cir. 1997),
(noting in dicta that "[i]t is certainly not open to an agency to
promulgate mush and then give it concrete form only through
subsequent less formal 'interpretations' "), cert. denied, 118
S. Ct. 1184 (1998). We think that reviewing this claim now

would amount to judicial interference before "an administra-
tive decision has been formalized and its effects felt in a
concrete way by the challenging parties." Abbott Labs., 387
U.S. at 148-49.

Judicial resolution of petitioner's second claim, that the
guidelines may undermine revenue adequacy, would likewise
benefit from a concrete case. Relying on Burlington North-
ern v. ICC, 985 F.2d at 597-99, petitioner argues that because
the three ratios are expressed as averages, they will tend to
set low limits on rates and ratchet these limits downward.
Saying that it recognizes these problems, the Board asserts it
will avoid them by using all three ratios and other relevant
evidence to test the reasonableness of challenged rates. See
December Decision, 1996 WL 741358, at *11 ("We recognize
the dangers inherent in relying on average numbers ... That
is why ... the r/vc benchmarks can only provide the starting
point for a rate reasonableness analysis, not the end result.");
id. ("[T]he analysis that we envision would not presume that,
simply because a rate produces an r/vc ratio above the
average level, it is thereby unreasonable.... Rather, what
we must consider is whether the resulting markup is within a
reasonable range or zone."); id. at *18 (discussing the ratch-
eting problem). Without the benefit of a specific application
of the guidelines to facts in a concrete case, we cannot know
whether the Board will heed its own advice, or instead fall
prey to the pitfalls that petitioner warns of. See Florida
Power & Light Co. v. EPA, No. 95-1093, slip op. at 10 (D.C.
Cir. June 26, 1998). At this time, we thus have no way of
evaluating petitioner's claim that the Board will employ the
guidelines to undermine revenue adequacy.

Petitioner's challenge to the Board's exclusion of SAC
evidence is equally unfit for judicial review. Although we are
unconvinced by the Board's explanation that a railroad's SAC
presentation would be unpersuasive because the railroad
"lacks the incentive to seek out the least-cost most-efficient
stand alone service," id. at *28--we rejected just this line of
reasoning in Burlington Northern v. ICC, 985 F.2d at 599
("Of course no adjudicator would expect to be able to rely
entirely on one side's analysis.")--the Board's explanation

that railroads may not convert small rate cases into SAC
cases when the shipper has demonstrated the infeasibility of
SAC persuades us the issue is not yet fit for review. Accord-
ing to petitioner, because it is possible to develop a low-cost
(although not computer model-based) SAC analysis, the
Board erred by excluding all SAC evidence. But since ship-
pers cannot use the three-ratio approach unless they first
demonstrate the infeasibility of a SAC presentation, the
appropriate time for us to review the Board's decision to
exclude all SAC evidence will come in a case where the Board
allows a shipper to use the three-ratio approach even though
the shipper arguably could have used a low-cost SAC presen-
tation instead. Until this happens, we have no way of know-
ing whether (and if so, on what grounds) the Board will ever
exclude low-cost SAC evidence in a case where a presentation
based on such evidence would have been feasible.

Finding all three of petitioner's challenges unfit for review,
we next consider whether deferring review would cause un-
due hardship to the parties. See Truckers United for Safety
v. FHA, 139 F.3d 934, 938 (D.C. Cir. 1998) (considering
hardship issue after finding challenges not fit for review).
We think it would not. To begin with, nothing in either the
record or the briefs even suggests that the guidelines have
any "current impact" on either petitioner or its members.
See Baltimore Gas & Elec., 672 F.2d at 149. Unlike Abbott
Laboratories, where the challenged FDA regulations forced
drug manufacturers to either spend money to comply or risk
criminal penalties, 387 U.S. at 152, here the guidelines "do not
command anyone to do anything or to refrain from doing
anything; they do not grant, withhold, or modify any formal
legal license, power or authority; they do not subject anyone
to any civil or criminal liability; they create no legal rights or
obligations," Ohio Forestry Ass'n, 118 S. Ct. at 1670.

According to the Board, deferring review will impose a
hardship upon the small shippers who will have to defend the
Board's guidelines when petitioner or its members challenge
them in some concrete future case. The Supreme Court has
already foreclosed this argument, noting that "[t]he ripeness
doctrine reflects a judgment that the disadvantages of a

premature review that may prove too abstract or unnecessary
ordinarily outweigh the additional costs of--even repetitive--
post-implementation litigation." Id. at 1671; see also Florida
Power & Light, No. 95-1093, slip op. at 13 (noting that the
"burden of participating in further administrative and judicial
proceedings ... do[es] not constitute sufficient hardship for
the purposes of ripeness"). In any event, we see no reason
why the same coalition of shipper trade associations that
came together to intervene in this case could not join again
when the guidelines are applied in a particular case. And in
a final illustration of the parties' odd alignment, the Board
contends that the case is ripe because petitioner "[c]learly ...
believes that application of guidelines could be harmful to the
rail industry." But since petitioner--the party charged with
demonstrating injury--has not alleged any harm, we think it
best to defer review.

Finding petitioner's challenges unfit for review and that
deferring review until the Board applies the guidelines in a
concrete case would impose no legally significant hardship
upon the parties, we dismiss the petition for lack of ripeness.
In the event that the Board applies the guidelines to invali-
date a specific rate, petitioner may file a petition for review
within sixty days of final agency action. See 28 U.S.C.
s 2344; Baltimore Gas & Elec., 672 F.2d at 149-50.
So ordered.