Buffalo Crushed Stone, Inc. v. Surface Transportation Board

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 13, 1999 Decided October 29, 1999

No. 98-1505

Buffalo Crushed Stone, Inc.,
Petitioner

v.

Surface Transportation Board and
United States of America,
Respondents

R.J. Corman Railroad Company/Allentown Lines, Inc. and
Consolidated Rail Corporation,
Intervenors

On Petition for Review of an Order of the
Surface Transportation Board

William A. Mullins argued the cause for petitioner. With
him on the briefs was David C. Reeves.

 Theodore K. Kalick, Attorney, Surface Transportation
Board, argued the cause for respondents. With him on the
brief were Henri F. Rush, General Counsel, Ellen D. Han-
son, Deputy General Counsel, Joel I. Klein, Assistant Attor-
ney General, U.S. Department of Justice, John J. Powers, III
and Robert J. Wiggers, Attorneys.

Jonathan M. Broder, Kevin M. Sheys, and Paul M. Lau-
renza were on the brief for intervenors.

Before: Ginsburg, Henderson and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: A Surface Transportation Board
regulation provides that rail abandonment notices containing
false information are "void ab initio" and must be "summarily
reject[ed]." In this case, although a false statement in a
notice of abandonment was not brought to the Board's atten-
tion until long after the notice was filed and the line sold to
another carrier, petitioner argues that the regulation requires
the Board to reject the notice and nullify the sale. Agreeing
with the Board that the regulation does not unambiguously
require that result and finding the Board's action neither
arbitrary nor capricious, we deny the petition for review.

I.

Rail carriers seeking to abandon rail lines must first re-
ceive authorization from the Surface Transportation Board.
Pursuant to 49 U.S.C. s 10903(d), the Board may affirmative-
ly approve an abandonment upon finding that it is permitted
by "public convenience and necessity." Alternatively, the
Board may expedite the process by granting the carrier
either an "individual" or "class" exemption from section
10903(d). See 49 U.S.C. s 10502. To initiate the expedited
class exemption procedure--the process involved in this
case--a carrier files with the Board a "notice of exemption,"
which must certify that no local traffic has moved over the
line for at least two years. See 49 C.F.R. s 1152.50(b). If a
notice of exemption contains false or misleading information,

section 1152.50(d)(3) of the Board's regulations provides--in
language central to this dispute--that "the use of the exemp-
tion is void ab initio and the Board shall summarily reject the
exemption notice." 49 C.F.R. s 1152.50(d)(3).

The Board alerts the public to a proposed "class exemp-
tion" abandonment by publishing a notice in the Federal
Register. See id. Publication affords interested parties a
chance to submit an offer of financial assistance, known as an
OFA, proposing to subsidize or purchase the line that is to be
abandoned. See 49 U.S.C. s 10904; 49 C.F.R. s 1152.27. If
a prospective purchaser and incumbent carrier agree to a
purchase that will maintain service, the Board approves the
sale and--again of significance to this case--dismisses the
notice of exemption. See 49 C.F.R. s 1152.27(f)(2).

In July 1996, Conrail filed a notice of exemption proposing
to abandon two rail lines running for several miles through
Erie County, New York. As required by section 1152.50(b),
Conrail's notice contained a certification that no traffic had
moved over the lines for the previous two years. Responding
to the Federal Register notice, R.J. Corman Railroad Compa-
ny/Allentown Lines, Inc. (RJCN) filed an OFA proposing to
acquire the two lines and to continue service. Conrail agreed
to sell the lines to RJCN, and the Board dismissed Conrail's
notice of exemption.

Approximately eighteen months later, petitioner Buffalo
Crushed Stone, a shipper located near one of the lines, filed a
petition with the Board to vacate Conrail's previously dis-
missed exemption notice. According to Buffalo, Conrail had
falsely certified that no traffic had moved across the lines for
the two years prior to the filing of the notice. Buffalo knew
the certification was false because it had shipped at least
twelve carloads of crushed stone over the lines during the
relevant two year period. Relying on section 1152.50(d)(3),
Buffalo argued that the exemption was "void ab initio" and
that the Board must "summarily reject" the notice. Buffalo
also urged the Board to revoke the sale to RJCN, since that
transfer resulted from OFA procedures that had been trig-
gered by the defective notice. Conrail never disputed the

falsity of the certification, claiming instead that the mistake
was "de minimis" and "inadvertent."

Buffalo also filed a formal complaint alleging that RJCN
had refused to provide service to it across one of the lines
acquired from Conrail and had discriminated against it by
demanding unreasonable rates. According to Buffalo, this
gave the Board an additional reason for revoking the sale.
Alternatively, Buffalo asked the Board to order RJCN to
provide it with trackage rights for reasonable fees.

The Board rejected Buffalo's petition to revoke the sale and
dismissed its complaint against RJCN. Although the Board
conceded that false information in an exemption notice nor-
mally results in a declaration that the notice is void ab initio,
it identified several reasons why such action was inappropri-
ate in the circumstances of this case. For one thing, vacating
the exemption notice and subsequent sale would unfairly
disadvantage RJCN, a bona fide purchaser who had acquired
the line under section 10904's OFA procedures. More gener-
ally, the Board found that nullifying the sale would cause
future OFA purchasers "to worry that their rights to the lines
they acquire might be abrogated months and perhaps years
later because of some defect in the underlying abandonment."
The Board feared this would discourage the use of OFAs,
thus "derogating section 10904." Finally, the Board pointed
out that Buffalo--the very party who had utilized Conrail's
lines and had actual knowledge of the certification's falsity--
waited almost two years to register its objection. Declining
to decide whether that factor alone would be dispositive, the
Board said that Buffalo's failure to challenge the notice in a
timely fashion supported denial of the petition.

Turning to Buffalo's complaint against RJCN, the Board
found the refusal of service and discrimination claims unsup-
ported by the record. Although Buffalo had asked for and
received a rate quote from RJCN, the Board found nothing in
the record indicating that Buffalo had either tendered traffic
to move over the line or discussed such traffic with RJCN.
The Board also noted that crushed stone, the commodity
Buffalo wanted to ship, is exempt from Board regulation, see

49 C.F.R. s 1039.11(a), and that under the circumstances of
this case the Board lacked jurisdiction to grant Buffalo
trackage rights.

In this petition for review, Buffalo does not challenge the
dismissal of its complaint against RJCN. It challenges only
the Board's denial of its petition, claiming that section
1152.50(d)(3) requires the Board to reject the exemption
notice and revoke the sale, and that the Board's failure to do
so was arbitrary and capricious.

II.

We begin by emphasizing our highly deferential standard
of review. An agency's interpretation of its own regulation
merits even greater deference than its interpretation of the
statute that it administers. See, e.g., Bush-Quayle Primary
Comm., Inc., v. FEC, 104 F.3d 448, 452 (D.C. Cir. 1997) ("The
call for deference is even greater where the agency is inter-
preting its own regulations."). Where "the meaning of [regu-
latory] language is not free from doubt," we will defer to the
agency's interpretation so long as it "sensibly conforms to the
purpose and wording of the regulations." Martin v. OSHRC,
499 U.S. 144, 150-51 (1991) (alteration in original) (internal
quotation marks omitted). We have even permitted an agen-
cy to infer the existence of a missing term in a regulation
when the inference found support in the regulation's purpose
and history. See Western Mass. Elec. Co. v. FERC, 165 F.3d
922 (D.C. Cir. 1999). But deference is not without limit. We
will reject an agency's interpretation if "an alternative read-
ing is compelled by the regulation's plain language or by
other indications of ... intent at the time of the regulation's
promulgation." Thomas Jefferson Univ. v. Shalala, 512 U.S.
504, 512 (1994) (internal quotation marks omitted).

According to Buffalo, section 1152.50(d)(3) admits of no
ambiguity. The regulation says quite plainly that if a notice
of exemption "contains false or misleading information, the
use of the exemption is void ab initio and the Board shall
summarily reject the exemption notice." 49 C.F.R.
s 1152.50(d)(3). Buffalo argues that, because it is undisputed

that Conrail's notice contained a false certification, the ex-
emption is "void ab initio," and that the Board must "sum-
marily reject" it and revoke the sale to RJCN.

Although at first glance section 1152.50(d)(3) does seem
unambiguous, the Board points out that it is not at all clear
how that provision should be applied in the unusual circum-
stances of this case. Beginning with the phrase "shall sum-
marily reject," the Board argues that the regulation "does not
address what action should be taken if rejection of the notice
is no longer an available or appropriate remedy due to
intervening circumstances." Rejection of the notice in this
case is not "an available or appropriate remedy" for an
obvious reason: the Board dismissed the notice when RJCN
purchased the lines (the "intervening circumstance"). The
Board's position is well taken. How can it reject a notice of
exemption that has long since been dismissed? Since it
cannot, we agree that in the circumstances of this case section
1152.50(d)(3) does not unambiguously require the Board to
"summarily reject the exemption notice."

This leaves the question whether the regulation requires
the Board to declare the notice "void ab initio." According
to Buffalo, because "[v]oid ab initio means that a notice based
on false information is void from the beginning, as if it never
existed," the OFA sale to RJCN must be nullified since that
transaction resulted from the filing of the defective exemption
notice. The Board responds that although "[o]ur practice of
revoking abandonments authorized pursuant to the class ex-
emption is predicated on the need to maintain the integrity of
the applicable regulations ... that purpose is not served
when upholding the class exemption can only be achieved at
the expense of derogating section 10904 of the statute." In
other words, the Board found that cancellation of the sale
would discourage the use of OFA procedures and thus under-
mine section 10904's goal of maintaining rail service. See The
Burlington Northern and Santa Fe Railway Company--
Abandonment Exemption--in King County, WA, STB Dock-
et No. AB-6 (Sub-No. 380X), 1998 WL 452837 (I.C.C.) (not-
ing that the "fundamental purpose of section 10904 [is] to
continue rail service").

 Courts are not helpless captives when a literal application
of statutory language would subvert a regulatory scheme.
Where such a conflict exists, it is appropriate to consider the
purpose of the disputed provision and to construe the text
accordingly. See, e.g., Train v. Colorado Public Interest
Research Group, 426 U.S. 1, 24 (1976). Judge Learned Hand
put it this way:

Of course it is true that the words used, even in their
literal sense, are the primary, and ordinarily the most
reliable, source of interpreting the meaning of any writ-
ing.... But it is one of the surest indexes of a mature
and developed jurisprudence not to make a fortress out
of the dictionary; but to remember that statutes always
have some purpose or object to accomplish, whose sym-
pathetic and imaginative discovery is the surest guide to
their meaning.

Cabell v. Markham, 148 F.2d 737, 739 (2d Cir.), aff'd, 326 U.S.
404 (1945). Administrative agencies face similar interpretive
challenges and must be able to respond with similar resource-
fulness. See American Train Dispatchers Assoc. v. ICC, 54
F.3d 842, 850 (D.C. Cir. 1995) ("[A] regulatory interpretation
must be, among other things, consistent with the regulatory
scheme."). Demonstrating just that resourcefulness in this
case, the Board properly construed section 1152.50(d)(3) to
avoid undermining an independent statutory mandate.

Buffalo argues that "even if the Court finds that the Board
did have ... discretion [to uphold the notice of exemption],
the Board did not exercise its discretion in a rational man-
ner." We take this to mean that Buffalo thinks the Board
violated section 706(2)(A) of the Administrative Procedure
Act. See 5 U.S.C. s 706(2)(A). In support of its argument,
Buffalo contends that the Board's decision in this case depart-
ed from its practice of strictly enforcing section 1152.50(d)(3)
and failed "to take into account the prejudice sustained by
[Buffalo]." We disagree on both counts. Not one of the
cases cited by Buffalo for the proposition that the Board
always rejects exemption notices with false information in-
volved a completed OFA sale. Moreover, the Board's action

preserved the integrity of section 10904's OFA procedures,
protected a bona fide purchaser, and promoted the goals of
the statute. At the same time, the Board denied relief to a
party who, having slept on its rights, sought to abrogate a
long completed sale so that (as it freely admits) it could bid
on the lines itself.

The Board's articulation of a reasoned basis for its decision
distinguishes this case from Jost v. STB, No. 99-1054, slip
op., 1999 WL 961167 (D.C. Cir. Oct. 22, 1999). Decided just
last week, Jost involved a challenge to a notice of exemption
that was filed six days after the subject line was conveyed to
the Central Kansas Conservancy to be used as a trail, with
the possibility that rail service would be resumed in the
future. Relying on section 1152.50(d)(3), the challenge al-
leged that the notice of exemption was false and misleading
because it failed to inform the Board about right-of-way sales
by the railroad that potentially made the line unusable as a
trail and that might interfere with future rail service. The
Board declined to reopen the proceedings but failed to explain
why its discovery of the sales did not merit reconsideration of
its prior actions. We remanded so the Board could remedy
that deficiency. "The Board needs to articulate how it pro-
ceeds when faced with an allegation that sales of full-width
right-of-way have occurred, and why it believes that practice
is consistent with statutory requirements governing its juris-
diction.... At that point, if petitioners are still dissatisfied,
this court will have something to review." Jost v. STB, slip
op. at 14-15.

In this case, the Board has adequately articulated the
reasons for its decision. Because we find the Board's refusal
to cancel the sale neither arbitrary nor capricious, the petition
for review is denied.

So ordered.