United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 1, 1998 Decided November 17, 1998
No. 97-1624
Association of American Railroads,
American Short Line Railroad Association, and
Regional Railroads of America,
Petitioners
v.
Surface Transportation Board and
United States of America,
Respondents
Transportation Trades Department, AFL-CIO,
Intervenor
---------
Consolidated with
Nos. 97-1650 and 97-1653
On Petition for Review of an Order of the
Surface Transportation Board
---------
Jo A. DeRoche argued the cause for petitioners. With her
on the briefs were Alice C. Saylor and Kenneth P. Kolson.
Louis Mackall, V, Attorney, Surface Transportation Board,
argued the cause for respondents. With him on the joint
brief were Joel I. Klein, Assistant Attorney General, United
States Department of Justice, John J. Powers, III, and
Robert J. Wiggers, Attorneys; and Henri F. Rush, General
Counsel, Surface Transportation Board.
Lawrence I. Willis was on the brief for intervenor Trans-
portation Trades Department, AFL-CIO.
Before: Wald, Sentelle and Tatel, Circuit Judges.
Opinion for the court filed by Circuit Judge Sentelle.
Sentelle, Circuit Judge: The Association of American
Railroads ("AAR") petitions for review of a Surface Transpor-
tation Board ("STB" or "Board") decision amending its regu-
lations governing exemptions from certification procedures
for certain small rail line purchases. Under the new rule, to
qualify for the exemption railroads that will have a post-
acquisition net worth of more than $5 million must give
employees on the acquired rail line 60 days notice of their
"general intentions in hiring a work force" and basic informa-
tion on compensation and employee qualification require-
ments. Petitioners argue, inter alia, that the 60-day notice
requirement is a "labor protection condition[ ]" which the
STB is barred by 49 U.S.C. ss 10901 and 10902 from requir-
ing, and challenge the choice of a $5 million threshold as
arbitrary and capricious. The STB responds that the 60-day
notice requirement is not labor protection, and that it proper-
ly promulgated this rule under 49 U.S.C. s 10502, which
grants the Board authority to permit exceptions to its exist-
ing rules. For the reasons stated below, we uphold the
60-day notice requirement as within the Board's power under
49 U.S.C. s 10502 to tailor exemptions from its regulations,
and hold that the STB's choice of a $5 million limit was not
arbitrary and capricious.
I. Background
The STB regulates the sale and transfer of rail lines under
49 U.S.C. s 10901, governing construction and operation of
railroad lines, and 49 U.S.C. s 10902, governing short-line
purchases by Class II and Class III rail carriers. To con-
struct or operate a rail line, or to acquire or operate extended
or additional rail lines, a party must obtain from the STB a
certificate authorizing that activity. See 49 U.S.C.
ss 10901(a), 10902(a). Sections 10901 and 10902 both contain
the following provision:
(c) The Board shall issue a certificate authorizing activi-
ties for which such authority is requested in an applica-
tion ... unless the Board finds that such activities are
inconsistent with the public convenience and necessity.
Such certificate may approve the application as filed, or
with modifications, and may require compliance with
conditions (other than labor protection conditions) the
Board finds necessary in the public interest.
49 U.S.C. ss 10901(c), 10902(c). The Board has promulgated
regulations governing the content of these certificate applica-
tions and created procedures for filing and publishing them.
See generally Certificate to Construct, Acquire, or Operate
Railroad Lines, 49 C.F.R. pt. 1150. The Board also may
grant exemptions from regulations promulgated under Sec-
tions 10901 and 10902 under 49 U.S.C. s 10502, which per-
mits the STB to create expedited review processes. Absent a
grant of exemption under Section 10502, normal procedures
result in at least 70 days of advance notice before line
acquisitions are approved. Even without allowing for normal
administrative delays, the rules allow 35 days for the public to
file oppositions after publication of an application, 49 C.F.R.
s 1150.10(g), five days for applicants to reply, 49 C.F.R.
s 1150.10(h), and "typically an additional 30 days for the
Board's decision to become effective after it is issued." Re-
spondents' Brief at 10. Inherent in this scheme then, is a 70-
day window between the first publication required under the
rules and the effective date of the transaction. It is against
this framework that we evaluate the Board's amendment to
the exemption.
The governing provision, Section 10502, provides in rele-
vant part:
(a) In a matter related to a rail carrier providing
transportation subject to the jurisdiction of the Board
under this part, the Board, to the maximum extent
consistent with this part, shall exempt a person, class of
persons, or a transaction or service whenever the Board
finds that the application in whole or in part of a provi-
sion of this part--
(1) is not necessary to carry out the transportation
policy of section 10101 of this title; and
(2) either--
(A) the transaction or service is of limited scope; or
(B) the application in whole or in part of the provi-
sion is not needed to protect shippers from the abuse
of market power.
...
(d) The Board may revoke an exemption, to the extent
it specifies, when it finds that application in whole or in
part of a provision of this part to the person, class, or
transportation is necessary to carry out the transporta-
tion policy of section 10101 of this title....
...
(g) The Board may not exercise its authority under
this section to relieve a rail carrier of its obligation to
protect the interests of employees as required by this
part.
49 U.S.C. s 10502. The new rule implements Congress's
requirement that exceptions be permitted when they are in
keeping with the goals of the overall regulatory scheme. The
exemptions granted under Section 10502 allow railroads to
avoid sometimes cumbersome regulatory procedures when
making small purchases. The Board first created an expedit-
ed review system in 1985 in Ex Parte No. 392 (Sub-No. 1),
Class Exemption for the Acquisition and Operation of Rail
Lines Under 49 U.S.C. 10901, 1 I.C.C.2d 810 (1985). Under
the original expedited review system created by the Board,
sales could go through in either 7 or 21 days, depending on
the type of transaction. In a decision effective July 24, 1996,
the STB adopted a similar exemption for the acquisition or
operation of rail lines by Class III railroads. Class Exemp-
tion for Acquisition or Operation of Rail Lines by Class III
Rail Carriers Under 49 U.S.C. 10902, 1 S.T.B. 95 (1996).
With publication delays, the public and employees might
receive their first notice of the expedited transaction after the
sale went through. The Board decided that the uncertainty
that resulted from the lack of notice might have detrimental
effects on employees and in many cases could slow, rather
than expedite, the processes because community and employ-
ee interests might oppose the sale due to a lack of informa-
tion. See Acquisition of Rail Lines Under 19 U.S.C. 10901
and 10902--Advance Notice of Proposed Transactions, STB
Ex Parte No. 562, slip op. at 4 (Sept. 2, 1997).
In an effort to alleviate this problem, the Board commenced
the rulemaking at issue here. The final order amends vari-
ous portions of the code of federal regulations, and provides
that in order to qualify for exemption under the new rule, the
buyer of the rail lines must provide "general notice of [its]
intentions in hiring a work force," telling employees of the
acquired railroad "in general terms, the types and numbers of
jobs expected to be available, the terms of employment and
the principles of selection." Ex Parte No. 562, slip op. at 5-6.
Notices are to be posted at the workplace and mailed to the
national offices of the labor unions of the employees. See id.
The STB adopted this new rule in September 1997 after
notice and comment rulemaking.1 The Board justified the
__________
1 The final order amended 49 C.F.R. ss 1121.4, 1150.32, 1150.35,
1150.42 and 1150.45. Section 1121.4 was amended to include the
following paragraph:
(h) In transactions for the acquisition or operation of rail
lines by Class II rail carriers under 49 U.S.C. 10902, the
exemption may not become effective until 60 days after appli-
cant certifies to the Board that it has posted at the workplace
of the employees on the affected line(s) and served a notice of
Footnote 1--Continued
the transaction on the national offices of the labor unions with
employees on the affected line(s), setting forth the types and
numbers of jobs expected to be available, the terms of employ-
ment and principles of employee selection, and the lines that
are to be transferred.
Ex Parte No. 562, slip op. at 9. Section 1150.32 was amended to
include the following paragraph:
(e) If the projected annual revenue of the carrier to be
created by a transaction under this exemption exceeds $5
million, applicant must, at least 60 days before the exemption
becomes effective, post a notice of intent to undertake the
proposed transaction at the workplace of the employees on the
affected line(s) and serve a copy of the notice on the national
offices of the labor unions with employees on the affected
line(s), setting forth the types and numbers of jobs expected to
be available, the terms of employment and principles of em-
ployee selection, and the lines that are to be transferred, and
certify to the Board that it has done so.
Id. Paragraph (a) of Section 1150.35 was amended to read as
follows:
(a) to qualify for this exemption, applicant must serve a
notice of intent to file a notice of exemption no later than 14
days before the notice of exemption is filed with the Board, and
applicant must comply with the notice requirement of
s 1150.32(e).
Id. Section 1150.42 was amended to include the following para-
graph:
(e) If the projected annual revenue of the rail lines to be
acquired or operated, together with the acquiring carrier's
projected annual revenue, exceeds $5 million, the applicant
must, at least 60 days before the exemption becomes effective,
post a notice of applicant's intent to undertake the proposed
transaction at the workplace of the employees on the affected
line(s) and serve a copy of the notice on the national offices of
the labor unions with employees on the affected line(s), setting
forth the types and numbers of jobs expected to be available,
the terms of employment and principles of employee selection,
and the lines that are to be transferred, and certify to the
Board that it has done so.
Id. at 10. Paragraph (a) of Section 1150.45 was amended to read as
follows:
rule by stating that information would help employees make
important career choices, such as whether they would contin-
ue to work for their current employer, transfer to the acquir-
ing company, or seek work elsewhere. Greater employee
knowledge would help keep the rail industry efficient, and
would prevent groups from opposing these expedited transac-
tions. See id. at 7-8. The Board also stated that it would
consider requests for exemptions from the 60-day notice
requirement at the appropriate time. See id. at 7.
II. Discussion
AAR and associated parties oppose the new rule, and
petition for review under 28 U.S.C. ss 2321, 2342 and 2344.
They argue that the STB has no authority under its statutes
to promulgate the rule, contending that the 60-day notice is
"labor protection," which the STB is forbidden explicitly to
impose on transactions governed by Sections 10901 and
10902--rail-line acquisitions by Class II rail carriers, Class
III rail carriers, and noncarriers. Section 10901(c) and Sec-
tion 10902(c) authorize the STB to "require compliance with
conditions (other than labor protection conditions) the Board
finds necessary in the public interest." 49 U.S.C.
ss 10901(c), 10902(c). Creating the 60-day notice require-
ment, AAR argues, does not exempt railroads from regulation
under Section 10502, but illegally creates new regulations.
They also argue that the Worker Adjustment and Retraining
Act ("WARN Act"), 29 U.S.C. ss 2101-2109, determines
which railroads should be required to provide notice and that
the STB rulemaking violates the mandates of WARN. Final-
ly, they argue that there was no justification for the $5 million
threshold for notice, and that in certain cases its application
would lead to absurd results. During the notice and com-
__________
Footnote 1--Continued
(a) to qualify for this exemption, applicant must serve a notice
of intent to file a notice of exemption no later than 14 days
before the notice of exemption is filed with the Board, and
applicant must comply with the notice requirement of
s 1150.42(e).
Id.
ment period they urged the STB to adopt thresholds from
other statutes, and now argue that its failure to do so was
arbitrary and capricious. We consider each of these argu-
ments in turn.
A.Exemption under Section 10502
AAR argues that the STB exceeded its authority in relying
on Section 10502 when it added the 60-day notice require-
ment. Section 10502 authorizes the Board to deregulate as
necessary, not to regulate. Therefore, imposing an additional
requirement as a condition of granting the exemption is
impermissible. We have held that discretionary power to
deregulate "does not authorize the utilization of [ ] deregula-
tory powers as a means to achieve a new regulatory format."
Brae Corp. v. United States, 740 F.2d 1023, 1059 (D.C. Cir.
1984). In Brae, we reviewed regulations promulgated by the
ICC creating a new rate structure governing a railroad's use
of boxcars owned by another carrier. The new regulations,
among other things, set new car hire and storage rates, and
allocated costs for the movement of empty boxcars. The
Commission attempted to justify its new rules as "a partial
exemption from regulation subject to conditions." Id. at
1036. We held that the ICC exceeded its authority under the
deregulation provisions of 49 U.S.C. s 10505(a) when it im-
posed the new rate structure because Section 10505(a) per-
mitted it only to deregulate. Id. at 1055. To hold otherwise,
we said,
would give the Commission carte blanche to rewrite the
Interstate Commerce Act under the umbrella of its ex-
emption powers. That is, the Commission could invoke
section 10505(a) as the authority both for exempting a
section and for then re-regulating the industry under a
completely different format. This would clearly exceed
the powers granted to the Commission under section
10505(a).
Id. AAR argues that, as in Brae, here the STB is promulgat-
ing new regulations in the guise of deregulation, which it may
not do.
We disagree. The STB makes the changes we consider
here under its power to deregulate under Section 10502.
Inherent within the power to create exemptions from the
regulatory scheme is the power to limit the scope of those
exemptions. We agree that the STB may not create new
regulations in the guise of deregulation. However, it may,
consistent with Section 10502, amend its original scheme of
deregulation if its finds that the transportation policies so
require. See, e.g., Illinois Commerce Commission v. ICC,
787 F.2d 616, 632-33 (D.C. Cir. 1986) (discussing with approv-
al reconsidering and then restricting the scope of an initial
grant of eligibility for exemption).
The standard of review for the Board's interpretation of its
authority is supplied by Chevron U.S.A. Inc. v. Natural
Resources Defense Counsel, Inc., 467 U.S. 837, 842-43 (1984).
Under the Chevron doctrine, a court reviewing an agen-
cy's interpretation of a statute it administers must first
determine whether Congress has directly spoken to the
precise question at issue. If the intent of Congress is
clear, the review ends there for the court must give
effect to the unambiguously expressed intent of Con-
gress. If the court determines that Congress has not
directly addressed the precise issue, however, it then
goes to the second step of the review to determine
whether the agency's interpretation is based on a permis-
sible construction of the statute. In this second step, the
court must accord considerable weight to the agency's
construction of the statute and it may not substitute its
own construction of the statute for the agency's reason-
able interpretation.
American Petroleum Inst. v. EPA, 52 F.3d 1113, 1117-18
(citing Chevron, 467 U.S. at 843-44) (citations omitted).
We do not find in Section 10502 a clear expression of
congressional intent to create a one-way ratchet, permitting
deregulation only, without subsequent adjustment. In fact,
we conclude that significant discretion has been granted to
the agency to determine how much deregulation is appropri-
ate under Section 10502. Cf. Coal Exporters Ass'n of U.S. v.
United States, 745 F.2d 76, 82 (D.C. Cir. 1984) (interpreting
predecessor provision). Applying the deferential standards
required by Chevron step two, we conclude that the STB's
interpretation of its authority is not unreasonable, and decline
to substitute our judgment for the Board's.
In examining the predecessor to the provision at issue here,
governing deregulation by the Interstate Commerce Commis-
sion, we held that the agency's "argument that it is empow-
ered to adopt either partial or complete exemptions from
regulations is clearly correct." Brae, 740 F.2d at 1054. We
also recognized that deregulation meant the removal, not the
imposition of a new regulatory scheme. See id. However,
here we do not find the imposition of a new regulatory
scheme, but rather the limitation of the scope of an exemption
from the preexisting regulatory scheme.
As discussed above, the regulatory scheme, absent exemp-
tion, has 70 days of advance notice built into its structure.
The Board has now determined that the class exemption rules
it previously adopted cut the normal time for acquisition to 7
or 21 days. This created problems among rail employees and
the public because of the short notice. The administrative
procedure for reintroducing notice while maintaining the ex-
emptions merely restores a portion of the normal notice
requirement. It does not create additional regulations. The
problems that we found in Brae are not present here. In
Brae, the ICC was scrapping a rate schedule created by
Congress and substituting one of its own, calling it deregula-
tion. The new regulation requires the same party to provide
less notice than it otherwise would, and to provide less
detailed information than it otherwise would. The Board is
not barred from revisiting its decisions in light of its experi-
ence. We therefore hold that promulgating exemption proce-
dures which call for less notice than the norm does not
amount to impermissible regulation. Should the railroads
desire, they are free to revert to the normal procedures under
Sections 10901 and 10902.
B.Labor Protection
We now turn to AAR's argument that the notice require-
ment is "labor protection" which the Board is banned from
imposing by the plain language of the statute. Under both
Sections 10901(c) and 10902(c) the Board "may require com-
pliance with conditions (other than labor protection condi-
tions) the Board finds necessary in the public interest" when
determining whether it will issue a certificate to the railroad
seeking to take action. AAR argues that because the 60-day
notice is a labor protection condition within the meaning of
the statute, the Board is barred from requiring notice.
The Board does not suggest, and we do not hold, that it
may impose in the guise of a condition on deregulation a
provision that it could not impose ab initio under Sections
10901 and 10902. We therefore examine the 60-day notice
provision to see if it is within the prohibited category of
"labor protection conditions."
Under the Supreme Court's guidance in Chevron, signifi-
cant leeway is granted to the agency's interpretation, absent
a finding that "Congress has directly spoken to the precise
question at issue." American Petroleum Inst., 52 F.3d at
1117. At the first step of the Chevron inquiry, we examine
the term "labor protection." Congress has not defined the
term "labor protection" in its statute. Nor is there a plain
meaning of the term. Instead it must be examined in con-
text. "Labor protection" is a recognized term of art in the
railroad industry. See New York Dock Ry. v. U.S. 609 F.2d
83, 86 (2d Cir. 1979) (providing "a brief outline of the history
of railway labor protective conditions relevant to consolida-
tions, mergers, acquisitions and other similar transactions").
The term "labor protection" encompasses a panoply of provi-
sions acting together, including wage protection, severance
pay, protection of benefits and relocation expenses, as well as
advance notice of pending actions and dispute resolution. See
id. at 86-87.
Given the importance of context to the definition of the
term, we cannot say that Congress has spoken directly to the
precise issue here; i.e., whether the 60-day notice provision
standing alone falls within the prohibited category. We
therefore proceed to the second step of the Chevron inquiry,
in which we "accord considerable weight to the agency's
construction of the statute," American Petroleum Inst., 52
F.3d at 1117, and "may not substitute [our] own construction
of the statute for the agency's reasonable interpretation." Id.
at 1117-18. The Board explicitly stated that the 60-day
notice provision was not labor protection. See Ex Parte No.
562, slip op. at 5. The notice serves a different purpose than
the notice at issue in New York Dock:
Unlike the situation where we impose labor protective
conditions, buyers are not required to hire any of the
seller's employees, nor are they required to protect their
pay with displacement allowances, or to make payments
to employees they do not hire.
....
... The notice requirement we are imposing here is
informational, and it does not trigger any other legal
obligations.
Id.2 While it is obvious that there is a quantum of conditions
which, if enacted together, would fail even the deferential
Chevron standard, we hold that the 60-day notice provision
by itself does not cross that line. We therefore uphold the
Board's reasonable interpretation of its statute.
C.The WARN Act
Next we turn to the argument that the WARN Act pre-
cludes the Board from adopting the 60-day notice require-
ment. AAR argues that the WARN Act sets thresholds that
govern when employers selling all or part of their businesses
must provide advance notice:
An employer shall not order a plant closing or mass
layoff until the end of a 60-day period after the employer
__________
2 The conference report also supports the Board's distinction
between procedural and substantive labor protections, stating that
Section 10901(c) "eliminates the former optional authority to impose
labor protection (mandatory severance and salary and benefit
protection) to employees affected by [line] construction and opera-
tion cases." H.R. Conf. Rep. No. 104-422, at 179 (1995), reprinted
in 1995 U.S.S.C.A.N. 850, 864 (emphasis added).
serves written notice of such an order ... to each
representative of the affected employees as of the time of
the notice or, if there is no such representative at that
time, to each affected employee....
29 U.S.C. s 2102(a). The WARN Act also provides: "In the
case of a sale of all or part of an employer's business, the
seller shall be responsible for providing notice for any plant
closing or mass layoff in accordance with section 2102 of this
title, up to and including the effective date of the sale." 29
U.S.C. s 2101(b)(1). An "employer" is a business enterprise
that has 100 or more employees. 29 U.S.C. s 2101(a)(1). A
"plant closing" is a permanent or temporary shutdown that
results in an employment loss for 50 or more full-time em-
ployees. 29 U.S.C. s 2101(a)(2). A "mass layoff" is a reduc-
tion in force that results in an employment loss for either 50
or more full-time employees composing a third of the work
force, or 500 or more employees. 29 U.S.C. s 2101(a)(3).
The WARN Act covers the railroad industry, and, AAR
argues, the STB is violating the WARN Act by requiring
notice in transactions not subject to its scope.
We find this argument completely devoid of merit. The
fact that the WARN Act adopts a different size threshold for
businesses required to provide notice is irrelevant. The STB
was acting under the authority of Section 10502. AAR cites
no authority to suggest that the WARN Act is exclusive or
that it impliedly repeals any power of the Board. In fact, the
WARN Act itself says that the rights provided thereunder
are in addition to any other rights employees may have, and
"are not intended to alter or affect such rights and remedies."
See 29 U.S.C. s 2105.
D.The Five Million Dollar Threshold
Finally, we consider AAR's contention that the Board's
choice of a $5 million threshold was arbitrary and capricious
and not in accordance with law. AAR argues that the Board
did not provide a reasoned explanation for its choice of a $5
million threshold and that the size of the purchase, not the
size of the entity, governs the impact of the transaction.
AAR contends that the notice requirement applying to a
$5,000 sale that pushed a company over the $5 million thresh-
old, but not applying to a $4.5 million sale if it was to a
startup entity, is an anomalous result showing that the $5
million threshold is irrational. Moreover, it argues, there are
better thresholds to draw that would achieve the STB's stated
goals with less impact on the smaller railroads. AAR sug-
gests that the Board should have adopted higher thresholds.
For example, a $250 million threshold would more closely
match the point at which railroads become more labor inten-
sive. Carriers with revenues of $250 million or more employ
89 percent of the total number of rail freight employees. See
Petitioners' Brief at 25-26.
While there is much in what AAR says, we do not find that
the agency has committed a clear error of judgment. Our
review of the STB's action is subject to Section 706(2)(A) of
the Administrative Procedure Act, 5 U.S.C. s 706(2)(A).
We must uphold the [agency's] decision unless it is
"arbitrary, capricious, an abuse of discretion, or other-
wise not in accordance with law." ... Under the famil-
iar arbitrary and capricious standard our scope of review
... is narrow and we should not substitute our judgment
for that of the agency, but rather should determine
whether the decision was based on a consideration of the
relevant factors and whether there has been a clear error
of judgment. As part of this task, we must determine
whether the agency articulated a satisfactory explanation
for its action including a rational connection between the
facts found and the choice made.
Michigan Consol. Gas Co. v. FERC, 883 F.2d 117, 120-21
(D.C. Cir. 1989) (internal quotations, brackets, and citations
omitted).
While there may well be more logical thresholds, the Board
was not required to choose one of them. Ex Parte 562 shows
that the Board considered AAR's position during the notice
and comment period, as well as the opposing position of no
threshold, and rejected both extremes.
[W]e view the use of this threshold as providing a
balance between the goals of providing for notice and a
period of adjustment in transactions that will have the
greatest effect on employees and their local communities
while affecting the smallest number of carriers and
transactions. We indicated in the NPR that 78% of the
total number of freight railroads have annual revenues
under $5 million, but employ fewer than 3% of the total
number of rail freight employees; see "Selected Statis-
tics--U.S. Freight Railroads by Revenue Range," Pro-
files of U.S. Railroads--1996 Edition (Association of
American Railroads). Thus, the majority of transactions
involving the creation of, or purchases by, Class III
railroads should not be affected by this notice require-
ment, but the $5 million limit should embrace the trans-
actions that affect significant numbers of rail freight
employees, and, hence, the communities in which they
reside.
Ex Parte No. 562, slip op. at 7. The Board was attempting to
"exclud[e] the vast majority of small railroads and small
transactions from application of the notice requirement, while
including the majority of affected employees and their com-
munities." Id. at 7 n.10. Given the conflicting positions, it
was up to the Board to decide where to draw the line, and it
did so rationally. See FCC v. WNCN Listeners Guild, 450
U.S. 582, 596 (1981) (agency has discretion to weigh compet-
ing policies under its statute).
III. Conclusion
For the reasons stated, we uphold the Board's rulemaking.
The 60-day notice requirement is permissible as an adjust-
ment to its deregulation procedures promulgated under Sec-
tion 10502, and the choice of a $5 million threshold strikes a
permissible compromise between those who would have the
notice requirement apply to all transactions, and those who
would have it apply to none.