Munitions Carriers Conference, Inc. v. United States

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 3, 1998 Decided July 28, 1998

No. 97-5119

The Munitions Carriers Conference, Inc. and

National Motor Freight Traffic Association,

Appellees/Cross-Appellants

v.

United States of America, et al.,

Appellants/Cross-Appellees

Consolidated with 97-5240

Appeals from the United States District Court

for the District of Columbia

(No. 96cv00056)

(No. 97cv00595)

---------

Edith S. Marshall, Assistant U.S. Attorney, argued the
cause for appellants/cross-appellees, with whom Wilma A.
Lewis, U.S. Attorney, Mary Lou Leary, U.S. Attorney at the
time the briefs were filed, and R. Craig Lawrence and
Benjamin R. Barnett, Assistant U.S. Attorneys, were on the
briefs.

John R. Bagileo argued the cause for appellees/cross-
appellants, with whom Claire Shapiro was on the briefs.

Before: Edwards, Chief Judge; Wald and Ginsburg,
Circuit Judges.

Opinion for the court filed by Circuit Judge Ginsburg.

Ginsburg, Circuit Judge: After the Congress deregulated
the motor carrier industry, the Military Traffic Management
Command of the United States Army announced that it would
begin soliciting competitive bids for the carriage of Foreign
Military Sales (FMS) goods, which are military goods sold by
the United States to foreign governments. The Munitions
Carriers Conference and the National Motor Freight Traffic
Association--trade associations comprising groups of carriers
who transport FMS goods and general commodities for the
MTMC--sued, arguing that deregulation had not eliminated
the prohibition upon the Government's negotiating lower
prices for the shipment of such goods. The district court
agreed with the Carriers. We reverse, and hold that the
MTMC is not prohibited from seeking competitive bids for
the carriage of FMS goods.

I. Background

Once upon a time the United States banned price competi-
tion among interstate motor carriers of freight. See Howe v.
Allied Van Lines, Inc., 622 F.2d 1147, 1152-54 (3rd Cir. 1980)
(describing institution of tariff regime for railroads in 1887
and its extension to motor carriers in 1935). Each carrier
was required to file with the late Interstate Commerce Com-
mission a tariff of its prices and conditions of carriage. See

49 U.S.C. s 10762(a)(1) (1994) (repealed 1995). The carrier
could not charge a shipper any rate other than the rate in the
filed tariff, see 49 U.S.C. s 10761(a) (1994) (repealed 1995),
give any shipper "preferential treatment," see s 10735(a)(1),
or discriminate "unreasonably" in its charges to similarly
situated shippers, see s 10741(b) (1994) (repealed 1995).

From the outset the Government in its role as a shipper
was exempt from this regime, so that any carrier could carry
goods for the Government "free or at reduced rates." See 49
U.S.C. s 22 (1887) (now codified in revised form at 49 U.S.C.
s 13712 (Supp. I 1995); Howe, 622 F.2d at 1154 ("Congress
intended to preserve the federal government's power to bar-
gain with carriers, or to impose upon carriers preferential
rates and terms--free of the antidiscrimination provisions of
the Interstate Commerce Act, and free of regulation by the
[ICC]"). When the railroads were facing severe financial
problems in 1940, however--due in part to this government
privilege, see, e.g., S. Rep. No. 76-433, at 1-3 (1939); S. Rep.
No. 79-522, at 7 (1945)--the Congress for the first time
required the Government to pay "the full applicable commer-
cial rate" for all transportation (whether by rail or by motor
carrier) it procured. See 49 U.S.C. s 10721(a)(1) (1994) (re-
pealed 1995). The Congress also revised s 22 to make clear
that, notwithstanding the general prohibition of discrimina-
tion, a carrier could still voluntarily offer the Government
transportation "at reduced rates." See 49 U.S.C.
s 10721(b)(1) (1994) (now codified in revised form at 49
U.S.C. s 13712 (Supp. I 1995)). As of 1940, then, the Govern-
ment could not require reduced rates but it could still negoti-
ate them. In a further limitation, the Court of Claims held
that the Government could negotiate reduced rates only when
the goods involved were transported "for the United States."
Baggett Transportation Co. v. United States, 670 F.2d 1011
(Ct. Cl. 1982) (adopting ICC holding that transport was not
"for the United States" unless Government directly received
all pecuniary benefit of reduced price). Under Baggett, the
MTMC could not seek reduced rate transportation for ship-
ments of FMS goods because the cost of shipping such goods
is passed through to the foreign purchaser. See id.

In 1995 the Congress found that motor carriage had be-
come a "mature, highly competitive industry where competi-
tion disciplines rates far better than tariff filing and regulato-
ry intervention," and that rate regulation was no longer
necessary except for "[two] specialized categories of trucking
operations." S. Rep. No. 104-176, at 10 (1995) (referring to
household goods and certain noncontinguous domestic trade,
hereinafter collectively "household goods"); see id. at 43
(noting that "[f]or the two categories of traffic for which rates
would be regulated, new [s] 13701(a) would import the basic
rate reasonableness requirement"); see also 49 U.S.C.
s 13701 (also imposing reasonableness requirement on
"through routes," "divisions of joint rates," and rates "made
collectively by [any group of] carriers under agreements
approved" by the Surface Transportation Board). Therefore,
the Congress abolished the ICC and repealed the provisions
(1) requiring that a carrier file tariffs for all types of goods it
transports; (2) prohibiting discrimination and preferential
treatment; (3) prohibiting government requisition of reduced-
rate transport; and (4) permitting a carrier voluntarily to
offer the Government reduced rates.

The Congress then enacted a new statutory scheme under
which a carrier need file tariffs only for the transportation of
household goods, as to which preferential treatment is still
prohibited. See 49 U.S.C. ch. 137, s 13704(a)(2) (Supp. I
1995). At the same time, the Congress enacted a new version
of the reduced-rate provision for government shipments. See
49 U.S.C. s 13712 (Supp. I 1995) ("A carrier providing trans-
portation ... for the United States Government may trans-
port property ... without charge or at a rate reduced from
the applicable commercial rate.")

In the wake of this comprehensive deregulation, the MTMC
decided that it could solicit competitive bids for transporta-
tion of FMS goods notwithstanding the Baggett decision.
Seeking to realize the economies of scale that would be
available if FMS and Department of Defense goods were
transported together, the MTMC published a policy in De-
cember 1995 stating that a carrier wishing to transport FMS
goods must make one bid for the transportation of DOD and

FMS goods at the same price. See Movement of Foreign
Military Sales (FMS) Shipments--Policy Change, 60 Fed.
Reg. 64,031 (Dec. 13, 1995).

The two carriers' associations filed suit and the district
court invalidated the policy upon both procedural and sub-
stantive grounds. See Munitions Carriers Conference, Inc.
v. United States, 932 F. Supp. 334 (D.D.C. 1996) (Munitions
I). As to procedure, the court held that the MTMC had
failed to comply with the requirement of a 60-day period for
notice and comment before a new policy can take effect. Id.
at 336-340; see 41 U.S.C. s 418b(a). Turning to the sub-
stance of the matter, the district court said that "there is still
a two-level rate regime."

The new statute codified at s 13712 still anticipates
"discounted rates" for the government, and the rationale
of Baggett requires that FMS rates not include this
discount. To require carriers to submit one rate for
these two types of shipments would either (1) contravene
the holding of Baggett by giving foreign governments the
benefit of discounted rates; or (2) render the statutory
discount provision a nullity by preventing carriers from
submitting discounted bids for any MTMC work.

Id. at 341.

After the district court's opinion issued the MTMC an-
nounced that in 60 days it would begin accepting bids for the
transportation of FMS goods apart from DOD freight. Un-
der the new policy, however, a carrier transporting FMS
goods would have to follow the rules set forth in Military
Freight Traffic Rules Publication No. 1A, whereas under the
former tariff regime the MTMC had had to accept the terms
and conditions filed by each carrier as part of its tariff. See
Movement of Foreign Military Sales Material Under De-
partment of Defense Standard Tender of Freight Services
MT Form 364-R--Policy Change, 61 Fed. Reg. 58,679 (Nov.
18, 1996). The Carriers commented in response to this
Notice that the requirement to abide by Publication 1A was
unlawful under the substantive ruling in Munitions I. The
MTMC was not persuaded and it implemented the new policy
as proposed.

The Carriers again sued. This time the same court grant-
ed summary judgment to the MTMC, holding that the system
of separate competitive bids for FMS and DOD freight
moving subject to the rules in Publication No. 1A did not
conflict with Munitions I. See Munitions Carriers Confer-
ence, Inc. v. United States, Civ. No. 97-0595 (D.D.C. Aug. 1,
1997) (Munitions II). In case No. 97-5119 the MTMC
appeals the substantive aspect of Munitions I, arguing that
there is no two-level regime and that it is free to seek bids in
the manner most convenient for it. In case No. 97-5240 the
Carriers appeal Munitions II.

II. Analysis

We hold that the district court erred in Munitions I in
holding that there is still "a two-level rate regime" and upon
that basis invalidating the MTMC's single-rate bidding
scheme. The Carriers' appeal of Munitions II is therefore
moot.

A. Munitions I

Although the Carriers do not argue that the MTMC's
appeal of the decision in Munitions I (invalidating its first
policy) was mooted when the MTMC adopted the policy at
issue in Munitions II, we must consider the question in order
to be confident of our jurisdiction. See, e.g., FW/PBS, Inc. v.
City of Dallas, 493 U.S. 215, 231 (1990); Floyd v. District of
Columbia, 129 F.3d 152, 155 (D.C. Cir. 1997). Foreseeing
this jurisdictional issue, the MTMC, after prevailing in Muni-
tions II, republished its first policy in a Notice stating that, if
upheld in its appeal of Munitions I, it would reimpose that
policy. See Movement of Foreign Military Sales (FMS)
Shipments--Proposed Policy Change, 62 Fed. Reg. 58,946
(Oct. 31, 1997). That Notice keeps the validity of the first
policy in contention and therefore keeps this matter a live
controversy. And so to the merits.

The MTMC argues that by replacing the comprehensive
tariff regime of Chapter 107 with the household goods regime
of Chapter 137 the Congress intended to allow the market in
all other motor carriage to operate freely; therefore, the

MTMC may seek combined bids for the transportation of
FMS and DOD freight just as any other buyer in a free
market may solicit bids for the service it requires. The
Carriers counter that s 13712 creates (or preserves) a two-
tiered rate scheme in which discounts are still prohibited for
FMS goods. In their view, combined bids must be prohibited
because such bids would require a carrier either to give a
discount for FMS goods, contrary to s 13712, or to give up its
"right," pursuant to the same section, to offer a discount for
DOD freight.

As the MTMC points out, there is a fundamental flaw in
the Carriers' theory: it assumes that s 13712 applies to the
transportation of all types of goods, as did s 10721 under the
tariff regime. Chapter 107 made both tariffs and the require-
ments of nondiscrimination and nonpreferential treatment
universal; s 10721 (the predecessor to s 13712) exempted all
government transportation--and only government transpor-
tation--from the tariff requirement. Now that Chapter 137
imposes tariff and nonpreferential treatment requirements
only upon the carriage of household goods, however, and
eliminates any requirement of nondiscrimination, a carrier of
non-household goods may offer any price to any shipper and
negotiate different rates with different shippers. This is
because s 13712 states only that a carrier "may transport
property ... for the United States Government ... at a rate
reduced from the applicable commercial rate." That is, noth-
ing in s 13712 (or elsewhere in Chapter 137) prohibits a
carrier from offering such discounted rates to others: the
nondiscrimination provision (s 10741(a)) was repealed; and
the nonpreferential treatment requirement (s 10735(a)(1))
was succeeded by a provision (s 13704(a)(2)) that applies only
to household goods.

Indeed, the Carriers concede that a carrier may negotiate
rates with the Government as it does with other shippers.
Nonetheless the Carriers maintain that the Government may
not negotiate rates when it is acting on behalf of "a third
party," such as a foreign government purchaser of FMS
goods. The Carriers' argument is based upon the reference
in s 13712 to "the applicable commercial rate": for every

good there is a commercial rate, they say, and though a
foreign shipper may on its own negotiate a reduction from
that rate, the Government may not use its market power
("the threat of the loss of all freight moving under DOD
tenders") to negotiate for such shippers because that would
"force" a carrier to extend to a foreign government the
benefit of the reduced rates that under Baggett were "previ-
ously given to DOD alone."

The Carriers' theory misconstrues both s 13712 and Bag-
gett. In holding that the Government could negotiate rates
only when the pecuniary benefit would go directly and wholly
to the Government, Baggett was ensuring the integrity of the
tariff rate, no-discrimination scheme under which carriers
were prohibited from negotiating reduced rates for shippers
other than the Government. In other words, Baggett prohib-
ited discounts under s 10721 for non-government goods be-
cause the exemption in s 10721 was limited to government
goods and at that time non-government shippers were forbid-
den to seek discounts. Now that the tariff scheme has been
repealed, however, any shipper is free to seek a discount, as
the Carriers concede. Any discount now obtained by the
Government on behalf of a private shipper, therefore, would
not be a "reduced" rate under s 13712 but would be simply a
rate negotiated in the marketplace--and there is no indication
that such negotiated discounts are prohibited.

The Carriers' theory that the statutory reference to "appli-
cable commercial rates" somehow limits the MTMC's negoti-
ating options is also ill-founded. There are today no known
commercial rates other than the tariff rates filed for house-
hold goods. The only plausible way to read "applicable
commercial rates," therefore, is as a reference to tariff rates
for household goods. This reading is also consistent with the
usage of the phrase elsewhere in the statute over time.
Tariff rates were the only rates from 1887, when s 22 (the
original version of s 13712) was enacted, until 1995; during
that period the "applicable commercial rate[s]" were neces-
sarily the tariff rates. In the current version of the statute,
however, the Congress distinguishes between the "applicable
commercial rate[s]" and unregulated rates set in the market-

place, which strongly suggests that the phrase "applicable
commercial rate[s]" still refers to tariff rates (and perhaps to
collectively determined rates, see 49 U.S.C. s 13703, a matter
we need not decide in this case). For example, s 13710
states that a carrier must make available a copy of the rate
"applicable to its shipment or agreed to between the shipper
and carrier"; and s 13711 specifically addresses the differ-
ence--which could arise during the period of transition from
regulation to the market--between the "applicable rate" and
the "negotiated rate."

In addition, as the Government argues, there is no other
intelligible way to read the phrase "applicable commercial
rate[s]" because the statute gives no guidance on how to
determine such rates if they are not understood to be tariff
rates. Although the Carriers argue that their own internal
price lists should be considered the applicable commercial
rates, they offer no conventional legal argument to anchor
this implausible theory either in the text or the structure of
the statute. Tariffs were filed in a highly regulated environ-
ment overseen by the ICC; the tariff requirement was inte-
gral to the statutory purpose of ensuring that all rates were
"just and reasonable" and not "unduly discriminatory." In
today's unregulated marketplace, however, a carrier's internal
price list has no legal significance whatsoever. The carrier
may discriminate among different shippers; only the custom-
er, not the Government, decides whether a price is reason-
able; and 'just'-ness has nothing to do with the matter. To
read "applicable commercial rate[s]" as the Carriers' own
price lists, therefore, would be to read the Carriers' wish list
into the law.

As explained in our discussion of Baggett, a negotiated
rate--even if it is lower than the rates that others are able to
negotiate--is not a "reduced" rate. This conclusion is consis-
tent with the purpose of s 13712 and its predecessors, name-
ly, to allow carriers to offer and the Government to accept
discounted rates notwithstanding the general prohibition of
discrimination among shippers under the tariff regime. The
Government, not the carriers, has been the intended benefi-
ciary of this provision in all prior versions. The Carriers'

interpretation of s 13712, on the other hand, would benefit
them and harm the Government by prohibiting the MTMC
from using its market power to negotiate lower rates for the
shipment of FMS goods. That the Congress intended thus to
deny the Government and its FMS customers the benefit of
lower negotiated rates while deregulating the motor freight
industry and creating a free market for the benefit of all
other shippers is, to say the least, counter-intuitive. More
important, the suggestion remains completely unsupported.

The most reasonable way to interpret s 13712, then, is as
the MTMC suggests: the provision exempts a carrier from
the nondiscrimination provisions imposed by the rump tariff
regime retained for household goods; therefore, the exemp-
tion being no broader than the rule, it too applies only to
household goods moving under tariff rates. Deregulation
removed the prior limitation under which only the Govern-
ment could bargain with carriers. Because any shipper may
now bargain for a lower rate, the Government may also
bargain on behalf of non-government shippers. Neither Bag-
gett nor s 13712 provides any reason to treat FMS goods
differently from DOD goods, so there is no reason the MTMC
cannot solicit bids in the form of one combined offer for the
transportation of FMS and DOD freight. In sum, the policy
announced in the 1995 Notice does not violate anything in
Chapter 137.

B. Munitions II

The MTMC has stated that if it prevails in its appeal of
Munitions I--as it now does--it will again implement the
solicitation policy at issue in that case. See 62 Fed. Reg.
58,946. Because that policy will supersede the policy upheld
by the district court in Munitions II, the Carriers' appeal of
the latter case is now moot.

III. Conclusion

We reverse the judgment of the district court in Munitions
I and hold that the MTMC policy at issue in that case is
lawful. We dismiss as moot the appeal in Munitions II.

So ordered.