Proposed Rule2021-25169
Joint Petition for Rulemaking To Establish a Voluntary Arbitration Program for Small Rate Disputes
Primary source
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Published
November 26, 2021
Issuing agencies
Surface Transportation Board
Abstract
In response to a joint petition for rulemaking filed by five Class I rail carriers, the Surface Transportation Board (STB or Board) proposes to modify its regulations to establish a voluntary arbitration program for small rate disputes.
Full Text
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<title>Federal Register, Volume 86 Issue 225 (Friday, November 26, 2021)</title>
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[Federal Register Volume 86, Number 225 (Friday, November 26, 2021)]
[Proposed Rules]
[Pages 67588-67620]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25169]
[[Page 67587]]
Vol. 86
Friday,
No. 225
November 26, 2021
Part II
Surface Transportation Board
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49 CFR Parts 1011, 1108, 1115, et al.
Joint Petition for Rulemaking To Establish a Voluntary Arbitration
Program for Small Rate Disputes; Proposed Rule
Federal Register / Vol. 86 , No. 225 / Friday, November 26, 2021 /
Proposed Rules
[[Page 67588]]
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SURFACE TRANSPORTATION BOARD
49 CFR Parts 1011, 1108, 1115 and 1244
[Docket No. EP 765]
Joint Petition for Rulemaking To Establish a Voluntary
Arbitration Program for Small Rate Disputes
AGENCY: Surface Transportation Board.
ACTION: Notice of proposed rulemaking.
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SUMMARY: In response to a joint petition for rulemaking filed by five
Class I rail carriers, the Surface Transportation Board (STB or Board)
proposes to modify its regulations to establish a voluntary arbitration
program for small rate disputes.
DATES: Comments on the proposed rule are due by January 14, 2022. Reply
comments are due by March 15, 2022.
ADDRESSES: Comments and replies may be filed with the Board via e-
filing on the Board's website at <a href="http://www.stb.gov">www.stb.gov</a> and will be posted to the
Board's website.
FOR FURTHER INFORMATION CONTACT: Amy Ziehm at (202) 245-0391.
Assistance for the hearing impaired is available through the Federal
Relay Service at (800) 877-8339.
SUPPLEMENTARY INFORMATION: Pursuant to 49 U.S.C. 11708, the Board's
regulations at 49 CFR part 1108 establish a voluntary arbitration
program ``under which participating parties, including rail carriers
and shippers, have agreed voluntarily in advance or on a case-by-case
basis to resolve disputes about arbitration-program-eligible matters
brought before the Board using the Board's arbitration procedures.'' 49
CFR 1108.1(c).
On July 31, 2020, five Class I rail carriers--Canadian National
Railway Company (CN),\1\ CSX Transportation, Inc. (CSXT), the Kansas
City Southern Railway Company, Norfolk Southern Corp. (NSR), and Union
Pacific Railroad Company (UP) (collectively, Petitioners)--filed a
petition for rulemaking (the Petition) to add a small rate case
arbitration program at 49 CFR part 1108a, which would function
alongside the existing arbitration program at 49 CFR part 1108.\2\
Petitioners pledge to consent to arbitrate disputes under their
proposed program for a period of five years, provided the Board adopts
the program according to the terms set forth in the Petition. These
terms include the right of the carriers to withdraw from the program
under certain circumstances, such as if the Board adopts a material
change to its existing rate reasonableness methodologies or creates a
new rate reasonableness methodology after a shipper or railroad has
opted into the program. (Pet. 17.)
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\1\ The petition lists one of the petitioners only as ``CN.'' A
supplemental filing identifies this party as the ``U.S. operating
subsidiaries of CN.'' Although not identified in either filing, the
Board understands ``CN'' to mean Canadian National Railway Company.
\2\ Although the Petition refers to Norfolk Southern Corp., a
noncarrier, a subsequent supplement instead refers to that entity's
operating affiliate, Norfolk Southern Railway Company. (Pet'rs
Suppl. 2.) When referring to NSR in this decision, the Board is
referring only to Norfolk Southern Railway Company.
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Replies to the Petition were filed on August 20, 2020, by the
National Grain and Feed Association (NGFA); Olin Corporation (Olin);
the American Fuel & Petrochemical Manufacturers (AFPM); the U.S.
Department of Agriculture (USDA); \3\ and (filing jointly) the American
Chemistry Council, Corn Refiners Association, Institute of Scrap
Recycling Industries, National Industrial Transportation League, The
Chlorine Institute, and The Fertilizer Institute (collectively, Joint
Shippers).
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\3\ USDA structures its comment as individual letters to the
three then-current Board Members. Aside from the headings, the
content of each letter is identical.
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Supplemental pleadings were filed on September 10, 2020, and the
Board instituted a rulemaking proceeding to consider the proposal on
November 25, 2020.
After considering the Petition and the comments received, the Board
will grant the Petition, as qualified below, and propose new
regulations at 49 CFR part 1108, subpart B,\4\ establishing a voluntary
arbitration program for small rate cases.
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\4\ Petitioners proposed that the regulations establishing the
new arbitration program at a new part (49 CFR part 1108a) but
creating a new subpart within 49 CFR part 1108 is more consistent
with Code of Federal Regulations formatting.
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Background
The Board established arbitration procedures at 49 CFR part 1108 in
1997. See Arb. of Certain Disputes Subject to the Statutory Juris. of
the STB, 62 FR 46217 (Sept. 2, 1997), 2 S.T.B. 564 (1997). Under those
procedures, as originally conceived, parties could agree voluntarily on
a case-by-case basis to arbitrate any dispute involving the payment of
money or involving rates or practices related to rail transportation or
services subject to the Board's statutory jurisdiction. Id. at 565. The
Board established those procedures pursuant to its authority at 49
U.S.C. 721 (now 49 U.S.C. 1321), which generally authorizes the Board
to prescribe regulations in carrying out its statutory
responsibilities. Id. at 582.
In 2013, the Board modified its arbitration procedures in
Assessment of Mediation & Arbitration Procedures, 78 FR 29071 (May 17,
2013), EP 699 (STB served May 13, 2013) (revising and consolidating the
Board's arbitration procedures). Among other things, the Board
established a program under which a party could voluntarily agree in
advance to arbitrate particular types of disputes with clearly defined
limits of liability. Id. at 4. The revised regulations did not include
rate disputes as an arbitration-program-eligible matter.\5\ Id. at 7-9.
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\5\ The revised regulations permitted parties to agree on a
case-by-case basis to arbitrate additional matters, provided that
the matters were within the Board's statutory jurisdiction to
resolve and that the dispute did not require the Board to grant,
deny, stay or revoke a license or other regulatory approval or
exemption, and did not involve labor protective conditions. See
Assessment of Mediation & Arb. Procs., EP 699, slip op. at 8-9.
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In section 13 of the Surface Transportation Board Reauthorization
Act of 2015 (STB Reauthorization Act), Congress required the Board to
promulgate regulations establishing a voluntary and binding arbitration
process to resolve rail rate and practice complaints under its
jurisdiction. See Public Law 114-110, section 13, 129 Stat. 2228, 2235-
38. Section 13, which is codified at 49 U.S.C. 11708, set forth certain
requirements and procedures for the Board's arbitration process, such
as listing categories of covered disputes and imposing timelines. Id.
In response to section 13 of the STB Reauthorization Act, the Board
further adjusted its procedures at 49 CFR part 1108 to add rate
disputes to the matters eligible for arbitration under its arbitration
program and made other changes to conform to the requirements set forth
in the statute. See Revisions to Arb. Procs. (Revisions Final Rule), 81
FR 69410 (Oct. 6, 2016), EP 730, slip op. at 1-2 (STB served Sept. 30,
2016) corrected (STB served Oct. 11, 2016). To date, three Class I
carriers have opted into the Board's arbitration program for certain
types of disputes (though not rate disputes),\6\ but the program has
never been used.
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\6\ See UP Notice (June 21, 2013), CSXT Notice (June 28, 2019),
and CN Notice (July 1, 2019), Assessment of Mediation & Arb. Procs.,
EP 699.
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In January 2018, the Board established the Rate Reform Task Force
(RRTF) with the objective of, among other things, determining how best
to provide a rate review process for small cases.\7\ After
[[Page 67589]]
holding informal meetings throughout 2018, the RRTF issued a report on
April 25, 2019 (RRTF Report).\8\ Two key recommendations of the report
were legislation to permit mandatory arbitration of small rate disputes
and that the Board establish a new rate reasonableness decision-making
process under which a shipper and railroad would each submit a ``final
offer'' of what it believes a reasonable rate to be, subject to short,
non-flexible deadlines, with the Board selecting one party's offer
without revision. RRTF Report 14-20.
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\7\ The RRTF Report stated that, for small disputes, the
litigation costs required to bring a case under the Board's existing
rate reasonableness methodologies can quickly exceed the value of
the case. RRTF Report 5-8, 9, 14; see also Expanding Access to Rate
Relief, 81 FR 61647 (Sept. 7, 2016), EP 665 (Sub-No. 2), slip op. at
10 (STB served Aug. 31, 2016).
\8\ The RRTF Report can be accessed on the Board's website at
<a href="https://prod.stb.gov/wp-content/uploads/Rate-Reform-Task-Force-Report-April-2019.pdf">https://prod.stb.gov/wp-content/uploads/Rate-Reform-Task-Force-Report-April-2019.pdf</a>.
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In September 2019, the Board proposed a new procedure for
challenging the reasonableness of railroad rates in smaller cases based
on a final offer selection procedure, which it called Final Offer Rate
Review (FORR). See Final Offer Rate Rev., 84 FR 48872 (Sept. 17, 2019),
EP 755 (STB served Sept. 12, 2019). All Class I carriers who commented
in that proceeding opposed FORR on both legal and policy grounds. In
its comments, CN argued that the Board should abandon consideration of
FORR and suggested that the Board instead consider including within its
existing arbitration program a targeted avenue for smaller rate
disputes. See CN Comments 25-27, Nov. 12, 2019, Final Offer Rate Rev.,
EP 755; see also CN Reply Comments 2-3, Jan. 10, 2020, Final Offer Rate
Rev., EP 755. CN stated that such a program should include the
following features: Mandatory mediation, confidentiality, non-
precedential decisions, more modest limits on relief than those
authorized under 49 U.S.C. 11708, and voluntariness. See CN Comments
25-27, Nov. 12, 2019, Final Offer Rate Rev., EP 755.\9\
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\9\ The Association of American Railroads (AAR) also called for
the Board to investigate how to encourage parties to make greater
use of its voluntary arbitration program in a separate proceeding.
See AAR Comments 3, Feb. 13, 2020, Hr'g on Revenue Adequacy, 84 FR
48982 (Sept. 17, 2019), EP 761.
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In May 2020, the Board issued a decision that allowed for post-
comment period ex parte discussions with stakeholders regarding FORR.
See Final Offer Rate Rev., EP 755 (STB served May 15, 2020). Noting
that its arbitration program has gone unused, the Board expressed
interest in exploring the issues raised in CN's comments, as well as
whether and how its arbitration program at 49 CFR part 1108 could be
modified to provide a practical and useful dispute resolution
mechanism, particularly for stakeholders with smaller rate disputes.
Id. at 2.
During ex parte discussions with the Board Members, certain
Petitioners elaborated on the potential small rate case arbitration
framework outlined in CN's comments. Some carriers argued that the
Board should adopt changes to its existing arbitration process, such as
allowing for a more flexible arbitrator selection process and for
arbitration to have greater confidentiality protections. See CN, CSXT,
NSR, & UP Ex Parte Meeting Mem. 1-2, July 8, 2020 (filing ID 300856)
Final Offer Rate Rev., EP 755; CN, CSXT, NSR, & UP Ex Parte Meeting
Mem. 1-2, July 27, 2020 (filing ID 300928) Final Offer Rate Rev., EP
755. Those carriers also suggested that the Board consider, among other
things, creating an incentive for carriers to arbitrate by exempting
them from FORR or other types of rate challenges if they agree to
participate in arbitration. See CN, CSXT, NSR, & UP Ex Parte Meeting
Mem. 2, July 10, 2020 (filing ID 300866) Final Offer Rate Rev., EP 755.
They indicated their intent to submit a proposal to the Board that
could attract support from multiple stakeholders. See CN, CSXT, NSR, &
UP Ex Parte Meeting Mem. 1-2, July 21, 2020 (filing ID 300901) Final
Offer Rate Rev., EP 755.
In their ex parte discussions with Board Members, shipper interests
generally did not oppose an arbitration process provided it is fair,
though most advocated in favor of the Board adopting FORR. See, e.g.,
Olin Ex Parte Meeting Mem. 2, July 15, 2020 (filing ID 300883) Final
Offer Rate Rev., EP 755; American Chemistry Council Ex Parte Meeting
Mem. 3, July 17, 2020 (filing ID 300897) Final Offer Rate Rev., EP 755;
Solvay America Inc. Ex Parte Meeting Mem. 1, July 22, 2020 (filing ID
300916) Final Offer Rate Rev., EP 755.
On July 31, 2020, Petitioners filed the Petition, asking the Board
to establish a new arbitration program for small rate cases.
Petitioners argue that establishing a working arbitration program for
small rate disputes may offer the best long-term way to resolve the
recurring concern that even the Board's simplified rate review
methodologies are insufficient in terms of flexibility, cost, and
speed. (Pet. 1.) Petitioners propose certain changes from the Board's
existing arbitration process at 49 CFR part 1108, which they assert
would make their proposed arbitration program streamlined and more
flexible than the existing process and thus incentivize both railroad
and shipper participation. (Id. at 3.) Among these changes are
delegating market dominance determinations to the arbitration panel,
adding confidentiality protections, and allowing the use of arbitrators
who are not on the Board-maintained roster. (Id. at 21.) Petitioners
also claim that their proposed small rate case arbitration program is
both low-cost and consistent with statutory and economic principles,
which they claim distinguishes it from the FORR procedures proposed in
Docket No. EP 755. (Id. at 4.)
On August 20, 2020, NGFA, Olin, AFPM, USDA, and Joint Shippers
filed replies. NGFA and USDA state that they support the Board
commencing a rulemaking proceeding on the Petition, subject to certain
modifications and provided that the Board not delay implementation of
FORR. (NGFA Reply 1; USDA Reply 1.) \10\ Joint Shippers, Olin, and AFPM
urge the Board to deny the Petition and focus on completing the
proceeding in FORR. (Joint Shippers Reply 2-3; Olin Reply 1-2; AFPM
Reply 5.) Though some reply commenters state that the Petitioners'
proposal has elements worthy of consideration, (Joint Shippers Reply
3), and that a properly structured, efficient, and affordable
arbitration approach could well be a preferred alternative to FORR in
many circumstances, (USDA Reply 2), several reply commenters argue that
Petitioners are attempting to either delay the Board's adoption of FORR
or to avoid being subject to FORR if it is adopted. (Joint Shippers
Reply 4-5; AFPM Reply 1, 4; Olin Reply 8-9; USDA 1; see also NGFA Reply
5 (objecting to allowing carriers to be exempt from the FORR process if
they participate in the arbitration program).) Reply commenters also
object to specific aspects of the proposal, such as the fact that
shippers would be prohibited from challenging the rates under revenue
adequacy principles, (see Joint Shippers Reply 4-5; Olin Reply 7-8),
and that arbitration decisions would be confidential, (see USDA Reply
3; NGFA Reply 7-8).
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\10\ NGFA explains that it had a series of initial discussions
with representatives of the Petitioners prior to Petitioners'
submission of the Petition and that, while those discussions were
``constructive and conducted in good faith,'' NGFA and the
Petitioners were unable to reach a consensus on the proposal. (NGFA
Reply 1-2.)
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NGFA stated that it would not object to allowing Petitioners an
opportunity to reply and inform the Board whether the carriers would be
amenable to NGFA's proposed modifications, ``as well as whether
consideration and adoption of those changes would result in their
electing not to participate in the [proposed program] if modified in
certain respects.'' (NGFA Reply 3.) The Board issued a decision on
August 26, 2020, permitting Petitioners to submit a
[[Page 67590]]
supplemental pleading regarding the proposed modifications to the
arbitration program suggested by NGFA and other parties. Other
interested parties were also permitted to respond.
On September 10, 2020, Petitioners submitted a supplemental filing,
as did AFPM, the Joint Shippers, and the U.S. Wheat Associates
Transportation Working Group (U.S. Wheat).\11\ In their supplemental
filing, Petitioners state that they are agreeable to several
modifications to the proposed program, but not to the core features of
confidentiality, exemption from FORR, and a prohibition on revenue
adequacy considerations. The shipper groups largely renew their
previously stated objections.
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\11\ U.S. Wheat did not submit a reply to the Petition but filed
a response to the Board's August 26, 2020 decision. In its
supplement, U.S. Wheat argues that there are several differences
between Petitioners' proposed arbitration program and the Board's
FORR proposal that make FORR more favorable to wheat shippers, such
as the fact that FORR would be a public process, that the proposed
arbitration program would take longer because of a party's ability
to appeal to the Board, and that the proposed arbitration program
would exclude the ability to raise claims based on the revenue
adequacy constraint. (U.S. Wheat Suppl. 6-7.)
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On January 25, 2021, Canadian Pacific (CP),\12\ a Class I rail
carrier, filed a letter stating that it supports the effort to find a
``workable, reasonable, accessible arbitration program for small rate
cases, and would participate in such a pilot program.'' (CP Letter 1.)
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\12\ According to CP, ``Canadian Pacific'' is a trade name under
which Canadian Pacific Railway Company and its United States
subsidiaries--Soo Line Railroad Company; Dakota, Minnesota & Eastern
Railroad Corporation; Delaware and Hudson Railway Company, Inc.; and
Central Maine & Quebec Railway US Inc.--operate. (CP Letter 1.)
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The Proposed Rule
The Board has pursued different ways to improve its processes for
rate relief, particularly for smaller cases. See Final Offer Rate Rev.,
EP 755, slip op. at 3 (STB served Sept. 12, 2019); Mkt. Dominance
Streamlined Approach, 84 FR 48882 (Sept. 17, 2019), EP 756, slip op. at
3 n.5 (citing Expanding Access to Rate Relief, EP 665 (Sub-No. 2), slip
op. at 10 (STB served Aug. 31, 2016). Based on one of the RRTF's
recommendations, the Board proposed the FORR process. Here, Petitioners
urge the Board to adopt their proposed voluntary arbitration program
and exempt those carriers that choose to participate in the program
from having their rates challenged under the FORR process, if that
process is adopted.
Petitioners argue that their proposed arbitration program is the
best path forward to provide meaningful access to rate review for small
rate cases and that, with Petitioners' pledge to commit to the program
for five years, the program would provide an available avenue to
resolve small rate disputes. (Pet. 28.) As noted, they claim that their
proposed arbitration program is both low-cost and consistent with
statutory and economic principles, which they argue makes the program
different from FORR. (Pet. 4.)
As noted above, several shipper interests generally oppose
Petitioners' proposed arbitration program. Among their objections is
the idea that carriers participating in arbitration would be exempt
from FORR. (Joint Shippers Reply 4-5; AFPM Reply 1, 4; Olin Reply 8-9;
AFPM Suppl. 1, 2; U.S. Wheat Suppl. 7.) The Joint Shippers argue that
this condition would allow ``a railroad to exempt itself from the FORR
process simply by opting into the arbitration process and there would
be nothing that a shipper who prefers FORR over arbitration could do
about it.'' (Joint Shippers Reply 4.) The Joint Shippers also argue
that, if carriers are exempt from FORR, they will have no incentive to
seek improvements to the arbitration program to ensure it is effective.
(Joint Shippers Suppl. 5.) Olin argues that the ``adequate
justification'' required for the grant of a rulemaking petition under
the Board's regulations has not been presented by Petitioners here.
(Olin Reply 8.)
AFPM and U.S. Wheat argue that FORR presents far greater potential
for reducing regulatory burdens and increasing the accessibility of a
remedy for unreasonable rail rates than the arbitration process
outlined in the Petition. (AFPM Reply 1; U.S. Wheat Suppl. 6.) \13\
AFPM and U.S. Wheat also take issue with the fact that only five of the
seven Class I railroads have indicated they would participate. AFPM
argues that this ``would create a patchwork of inconsistent
regulations.'' (AFPM Reply 4.) U.S. Wheat states that it has a serious
concern that the process would be unfair if the other two Class I
carriers, BNSF Railway Company (BNSF) and CP do not participate,
particularly since a large amount of U.S. Wheat's stakeholders' rail
traffic moves on BNSF. (U.S. Wheat Suppl. 6.) These filings pre-dated
CP's letter, described above, concerning its potential participation in
an arbitration program. (CP Letter 1.)
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\13\ APFM also objects to Petitioners submitting their Petition
eight months after the comment period closed in Final Offer Rate
Review. (APFM Reply 2-4.) However, the Board itself--prompted by
comments filed in that proceeding by CN--stated that it was
interested in exploring the possibility of modifying its arbitration
procedures to increase their usefulness for stakeholders with
smaller rate disputes and waived its prohibition on ex parte
communications for that specific purpose. Final Offer Rate Rev., EP
755, slip op. at 2-3 (STB served May 15, 2020). Moreover, the
Board's regulations do not limit when petitions for rulemaking may
be filed. 49 CFR 1110.2(b), (c).
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NGFA believes that FORR and arbitration can be constructed in a way
to coexist and complement one another. (NGFA Reply 2.) Although NGFA
generally objects to exempting railroads that participate in
arbitration from the FORR process, it proposes several alternatives to
Petitioners' proposal. These alternatives, which contemplate some
limited form of a FORR exemption, include the Board: (1) Setting the
duration for the proposed arbitration program at two to three years,
after which time, the Board would be required to conduct an assessment
to determine whether the program is working as intended and whether the
FORR exemption should be removed; (2) requiring a shipper to pursue its
initial rate case against a carrier through arbitration but allow the
shipper to utilize either FORR or arbitration for any subsequent rate
cases; or (3) allowing a railroad to voluntarily decline to be subject
to the FORR exemption. (NGFA Reply 5-6.)
USDA states that while an arbitration process could be useful, an
arbitration program should complement FORR (rather than be a
substitute), and it urges the Board to move forward expeditiously to
finalize FORR and not allow the Petition to interfere with or delay
that effort. (USDA Reply 1-2; see also Olin Reply 2 (arguing that the
Board should adopt FORR now and consider implementing a new arbitration
process later).) USDA argues that carriers will have no incentive to
arbitrate without an effective rate review mechanism as a backstop.
(USDA Reply 1; see also Olin Reply 9.)
In their supplemental filing, Petitioners argue that the voluntary
nature of arbitration, as well as the efficiency, speed, low cost, and
flexibility of the proposed program would make it a superior option to
FORR, which they contend has various legal and procedural infirmities.
(Pet'rs Suppl. 13-14.) Petitioners contend that it would not be
reasonable for them to consent to participate in the proposed
arbitration program without being exempt from FORR, and such an
exemption appears to be central to their proposal. (Id. at 14.)
Petitioners argue that their proposed program solves the very problem
that the Board seeks to remedy with FORR. (Id.)
After careful consideration, the Board has determined to defer
final action in the FORR docket to provide for parallel consideration
of the voluntary, small rate case arbitration program proposed in this
docket. This approach will
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enable the Board and stakeholders to consider a new proposal for an
arbitration process simultaneously along with the proposed rulemaking
in Final Offer Rate Review, Docket No. EP 755. In order to consider the
pros and cons of enacting an arbitration process that would effectively
exempt participating carriers from FORR challenges, as Petitioners
request, or enacting FORR and making it available regardless of whether
or not the Board adopts a new arbitration program, as many shipper
interests have urged, the Board has concluded that both the voluntary,
small rate case arbitration program and FORR should be considered
concurrently by the Board and stakeholders before final action is taken
on either.
The arbitration proposal in the notice of proposed rulemaking
(NPRM) here is modeled on some (but not all) aspects of Petitioners'
proposal.\14\ Congress required rate disputes be included as eligible
for arbitration. 49 U.S.C. 10708(b); see also S. Rep. No. 114-52 at 7,
13. The Board has frequently stated that it favors the resolution of
disputes through the use of mediation and arbitration procedures, in
lieu of formal Board proceedings, ``whenever possible.'' See 49 CFR
1108.2(a); Bos. & Me. Corp.--Appl. for Adverse Discontinuance of
Operating Auth.--Milford-Bennington R.R., AB 1256, slip op. at 10 (STB
served Oct. 12, 2018). The Board finds it would be premature to discard
the possibility of a voluntary, small rate case arbitration program
without further exploring whether such an approach might be workable
and the interplay of that approach with FORR.
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\14\ Due to the potential interrelationship between the small
rate case arbitration program proposed by Petitioners and FORR, the
Board will post notice of this decision in Docket No. EP 755.
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A voluntary arbitration program focused on the resolution of small
rate disputes, as proposed below, could further the rail transportation
policy of 49 U.S.C. 10101. Specifically, it could facilitate the
expeditious handling and resolution of proceedings (49 U.S.C.
10101(15)); support fair and expeditious regulatory decisions when
regulation is required (49 U.S.C. 10101(2)); and help to maintain
reasonable rates where there is an absence of effective competition (49
U.S.C. 10101(6)). The proposed voluntary arbitration program could also
complement congressional directives in the STB Reauthorization Act,
which requires that the Board ``maintain 1 or more simplified and
expedited methods for determining the reasonableness of challenged
rates in those cases in which a full stand-alone cost presentation is
too costly, given the value of the case,'' and that it ``maintain
procedures to ensure the expeditious handling of challenges to the
reasonableness of railroad rates.'' 49 U.S.C. 10701(d)(3), 10704(d). A
voluntary arbitration program for small rate disputes could provide an
additional option beyond the Board's existing formal rate
reasonableness processes designed for relatively small disputes (i.e.,
Three-Benchmark and Simplified Stand-Alone Cost (Simplified-SAC)
tests).
In order to allow stakeholders to fully compare the arbitration and
FORR proposals, as emphasized above, the Board is simultaneously with
this NPRM issuing a supplemental notice of proposed rulemaking (FORR
SNPRM), published elsewhere in this issue of the Federal Register,
reflecting modifications in the FORR rule proposed in Final Offer Rate
Review, EP 755 (STB served Sept. 12, 2019). In addition to noticing
those modifications, FORR SNPRM addresses comments received by the
Board in response to the original notice of proposed rulemaking and the
ex parte meetings conducted in the FORR docket. Whether to adopt any
voluntary rate review arbitration program, how such a program might
interact with the process proposed in the FORR docket, and whether to
adopt the proposed FORR process will be guided by the parallel
consideration of both proposals.
Because the arbitration of disputes before the Board is voluntary,
fundamental to the Board's determination whether to enact the
arbitration proposal in this docket will be a commitment of all Class I
carriers to agree to arbitrate disputes submitted to the program for a
term of no less than five years. This initial commitment would promote
the goal that shippers have similar access to rate review procedures.
The importance of this initial commitment is amplified by the carriers'
opposition to FORR and the likelihood that they would seek to challenge
adoption of that process. (See Pet'rs Suppl. 13 (stating that the FORR
process would be ``subject to immediate legal challenges'').) If all
Class I carriers consent to participate in this proposed arbitration
program for five years, and the Board determines to adopt the program
after stakeholder consideration and input, shippers served by Class I
carriers would be afforded a new avenue for potential rate relief, and
with the certainty of carrier engagement.\15\
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\15\ As stated in the FORR proceeding, rate cases filed to date
indicate that complainants' rate concerns relate primarily to Class
I carriers. Final Offer Rate Rev., EP 755, slip op. at 16-17. While
the Board views participation by the Class I carriers as
particularly important, nothing in this proposal would prohibit
Class II and Class III carriers from voluntarily participating in
the arbitration process on a term basis. As explained below, Class
II and Class III carriers would also be permitted to participate on
a case-by-case basis.
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Further, given the voluntary nature of the arbitration of rate
disputes, any such program is not likely to succeed unless stakeholders
find the program's important elements acceptable. Accordingly, the
voluntary arbitration program being proposed here focuses on
incentivizing railroad and shipper participation \16\ and ensuring that
the program is fair and balanced. To achieve this, the Board's proposal
modifies aspects of the program proposed by Petitioners. Although
Petitioners have ``reserve[d] their right'' not to participate in
arbitration if any modifications are made to their proposal, (Pet. 21),
certain elements of Petitioners' proposal would have made the program
unbalanced or simply are not feasible. However, the program proposed
here is based on law and sound policy and still includes features that
carriers should find attractive. By the same token, the Board also
views its proposed voluntary arbitration program as including features
that shippers should find beneficial, particularly those shippers that
consider the Board's current processes too expensive and time consuming
given the size of their disputes.
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\16\ Although the Board uses the term ``shipper'' throughout the
decision for convenience, the Board has made clear that parties
other than shippers have standing to bring rate challenges. See
Publ'n Requirements for Agri. Prods., EP 526 et al., slip op. at 7-8
(STB served Dec. 29, 2016). For this reason, the Board uses the term
``shipper/complainant'' in the proposed regulations. See below.
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The Board will consider all comments received on the proposal set
forth in this decision and the information gathered during any
requested ex parte meetings in this docket,\17\ along with the comments
filed and ex parte discussions that have taken place in the FORR
docket, before deciding its next actions with respect to both
proceedings.
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\17\ Pursuant to 49 CFR 1102.2(g), ex parte communications with
Board Members in informal rulemaking proceedings are permitted after
the issuance of a notice of proposed rulemaking and until 20 days
before the deadline for reply comments.
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The Board discusses below the significant features of the
voluntary, small rate case arbitration program that it is proposing
here. The proposed rule is set out below.
I. Authority for a Separate Small Rate Case Arbitration Program
The Petition calls for the Board to establish a new arbitration
program under a new set of regulations at 49 CFR
[[Page 67592]]
part 1108a, which would function alongside the Board's existing
regulations at 49 CFR part 1108. Petitioners argue that the Board may
establish such a program pursuant to its general authority at 49 U.S.C.
1321, and that the program would therefore be ``separate and distinct''
from the requirements of 49 U.S.C. 11708. (Pet. 19, 22.) \18\
Specifically, Petitioners contend that the Board has satisfied 49
U.S.C. 11708 through its most recent amendments to 49 CFR part 1108,
and suggest that because the Board has one set of compliant procedures,
it is now free to adopt procedures that ``differ from the
requirements'' of 49 U.S.C. 11708. (Id. at 3, 19.) They argue that the
specific elements of their proposed program will necessarily be legal
so long as the parties voluntarily consent to the arbitration, and so
long as the program ``is limited to deciding issues within the Board's
jurisdiction to decide.'' (Id. at 19-20.)
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\18\ (See also Pet., App. A at 2-3 (relying on section 1321(a),
5 U.S.C. 571, 49 U.S.C. 10101(15), and section 10701(d)(3) as the
authorities for the proposed program).)
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Section 11708 requires that the Board promulgate regulations to
establish a voluntary and binding arbitration process to resolve rail
rate and practice complaints. 49 U.S.C. 11708(b)(1). Section 11708
specifically covers the subject of Board-sponsored rail rate
arbitration, whereas 49 U.S.C. 1321 covers the Board's general
rulemaking authority.\19\ Thus, the Board finds that the most
reasonable interpretation is that the authority for Board procedures
for arbitrating rate cases derives from section 11708.\20\
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\19\ See Norwest Bank Minn. Nat'l Ass'n v. FDIC, 312 F.3d 447,
451 (D.C. Cir. 2002) (``When both specific and general provisions
cover the same subject, the specific provision will control,
especially if applying the general provision would render the
specific provision superfluous . . . .'') (citing Crawford Fitting
Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 445 (1987)).
\20\ This is not to say that parties may not voluntarily consent
to private arbitration of rail rate and related disputes on terms
differing from the requirements in 49 U.S.C. 11708. Indeed, by its
terms, section 11708 does not prevent ``parties from independently
seeking or utilizing private arbitration services to resolve any
disputes the parties may have.'' 49 U.S.C. 11708(b)(3).
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However, there is no language in section 11708 prohibiting the
Board from establishing more than one arbitration program that complies
with the requirements of the statute. As relevant here, the statute
merely requires that the Board establish a ``voluntary and binding
arbitration process to resolve rail rate and practice complaints
subject to the jurisdiction of the Board.'' 49 U.S.C. 11708(a).
Accordingly, a dual-track arbitration program--i.e., a program under 49
CFR part 1108, subpart A, and another under proposed 49 CFR part 1108,
subpart B--is permissible. Cf. Simplified Standards for Rail Rate Cases
(Simplified Standards), 72 FR 51375 (Sept. 7, 2007), EP 646 (Sub-No.
1), slip op. at 52 (STB served Sept. 5, 2007) (stating that a three-
tiered system for rate review fulfilled the directive in 49 U.S.C.
10701(d)(3) to establish ``a simplified and expedited method'' for
determining rate reasonableness), aff'd sub nom. CSX Transp., Inc. v.
STB, 568 F.3d 236 (D.C. Cir.), vacated in part on reh'g, 584 F.3d 1076
(D.C. Cir. 2009).
The Board concludes that the arbitration program proposed in this
decision is consistent with section 11708. It is therefore not
necessary to consider proposing rate case arbitration rules under other
potential sources of authority.
II. Program Participation, Withdrawal Rights, and FORR Exemption
Petitioners have proposed an arbitration program, like that at 49
CFR part 1108, in which by agreeing to participate on a programmatic
basis (i.e., opting in) as opposed to a case-by-case basis, a carrier
will be required to arbitrate eligible cases for so long as it is
participating within the program. The Board has explained above the
importance of all Class I railroads agreeing to participate in the
arbitration program for a term of five years. Accordingly, the Board
will not allow for at-will participation as Petitioners have proposed,
and will only permit term participation, with the initial term due to
expire five years from the effective date of the arbitration
program.\21\
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\21\ Participation on an ``at will'' basis means that the
carrier reserves the right to withdraw from the proposed program at
any time for any reason, while participation on a ``term'' basis
means that the carrier agrees to participate in the program for a
specific length of time and can only opt out under certain
conditions. (See Pet. 16-17, App. A at 3.) Under Petitioners'
proposal, upon expiration of any such ``term,'' a participating
carrier remains within the program on an at-will basis. (Id., App. A
at 3, 4.)
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Petitioners also propose triggers that would allow a participating
carrier to withdraw from the proposed arbitration program. Because the
participation of all Class I railroads is an important aspect of the
arbitration program, the Board proposes more narrow withdrawal rights
that would allow withdrawal from the program only if there is a
material change in law. However, the Board emphasizes the importance of
a readily accessible small rate case review process as a backstop in
the event a carrier is no longer participating in the arbitration
program.\22\ Indeed, in determining final action in this docket, the
Board will continue to prioritize the aforementioned goal of enhancing
shippers' access to rate relief. Accordingly, the Board seeks comment
specifically on whether its consideration of carriers' withdrawal
rights, as set forth in the following subsections, should take into
account the availability of other readily accessible rate review
processes, including whether any such mechanism is adopted concurrently
with the adoption of any voluntary, small rate case arbitration
program.
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\22\ The Board notes that Petitioners themselves appear to have
contemplated such a backstop by effectively conditioning carrier
participation in the arbitration program on an exemption from FORR.
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To account for the possibility that the Board might adopt FORR
either concurrently with the adoption of a voluntary arbitration
program or during the pendency of such a program, the Board will
propose at this time--without deciding the ultimate outcome of that
proceeding--that participation in arbitration exempts participating
carriers from FORR, as explained further below.
A. Program Participation
Petitioners propose that parties would ``opt into'' the proposed
program; however, unlike under the Board's existing arbitration
program, carriers participating in the proposed program would not be
allowed to limit their participation to only certain types of disputes
or disputes meeting additional criteria (such as a lower monetary
relief cap).\23\ (Pet., App. A at 3-4.) Also, unlike 49 CFR
1108.3(a)(2), Petitioners propose that railroads would not be able to
participate on a case-by-case basis but instead would be required to
opt into the program in advance, either on an at-will or term basis.
(Id. at App. A at 3.) Shippers would be allowed to opt into the
proposed program on a case-by-case basis. (Id.) As in 49 CFR 1108.4(c),
the Petition provides that the Board would maintain on its website a
list of railroads that have opted into the program. (Id.)
---------------------------------------------------------------------------
\23\ Under the existing arbitration program, a party may limit
its participation to certain types of disputes or certain monetary
relief caps. See 49 CFR 1108.3(a)(1).
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As explained above, the Board will propose allowing carriers to opt
into the proposed program only on a term basis of five years. To allow
a shipper to potentially challenge rates for multi-carrier moves
between a Class I and Class II or III carrier, the Board will also
propose that Class II or III carriers can choose to voluntarily
participate on a
[[Page 67593]]
case-by-case basis. See proposed Sec. 1108.23(a)(4). The Board will
propose that shippers may opt in on a case-by-case basis, as
Petitioners have suggested.
The Board's proposal that both carriers and shippers opt-in
voluntarily complies with section 11708, which requires that the
Board's rate case arbitration procedures be ``voluntary'' but does not
specify a mechanism for participation. For cases in which a movement
involves the participation of multiple railroads, arbitration could
only be used if all carriers involved in the movement have opted in
(which the Class I carriers will have already done) or consented to
participate for a particular dispute (in the case of Class II or III
carriers \24\).
---------------------------------------------------------------------------
\24\ As noted above, nothing in this proposal would prohibit
Class II and Class III carriers from voluntarily participating in
the arbitration process on a term basis.
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To distinguish between parties that opt into the existing
arbitration process created in Docket No. EP 699 (as modified in Docket
No. EP 730), the Board will propose requiring that railroads opting
into the proposed program file their opt-in notices under Docket No. EP
765, which will also be posted on the arbitration page of the Board's
website. See proposed Sec. 1108.23(a).
B. Withdrawal Rights
Petitioners propose that a carrier participating in the proposed
arbitration program should be permitted to withdraw from the program
if: (1) The Board adopts the FORR process but does not exempt carriers
participating in arbitration from that process; (2) there is a change
in the law regarding rate disputes or the arbitration program; or (3)
the number of arbitrations exceeds a designated limit.\25\ Each of
these bases for withdrawal is discussed in turn.\26\
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\25\ The Petition also proposes that carriers participating in
the program on an at-will basis would be permitted to withdraw any
time at the carriers' discretion. Because the Board does not propose
at-will participation, it need not address the Petition's proposed
at-will withdrawal right.
\26\ As noted above, the Board seeks comment specifically on
whether its consideration of carriers' withdrawal rights should take
into account the availability of other rate review processes.
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1. Adoption of FORR/FORR Exemption
Petitioners propose that a participating carrier be allowed to
withdraw from the small rate case arbitration program if the Board
adopts FORR in Docket No. EP 755 but does not exempt carriers
participating in the program from the FORR process. (Pet. 17.)
Petitioners state that, by agreeing to arbitrate under the program,
they will be limiting their ability to appeal an adverse decision and,
as such, it is essential that they have the right to exit the program
if they become subject to what they describe as the ``untested'' FORR
process. (Id. at 26.)
As noted above, several parties object to this aspect of the
Petition. The Joint Shippers, USDA, and AFPM argue that a FORR
exemption would allow railroads to force shippers to use arbitration
regardless of whether the shippers prefer FORR, even though the
Petitioners' proposed arbitration process cuts many of the elements of
the FORR process that make it accessible. (Joint Shippers Reply 1; USDA
Reply 2; AFPM Reply 4.) NGFA also objects, noting that an exemption
from FORR would prevent its members from being able to ``test'' the
reasonableness of rail rates under that process and proposes several
alternatives (discussed above). (NGFA Reply 5.) NGFA and USDA suggest
that the Board seek input on potential ways to resolve this particular
issue. (Id. at 6-7; USDA Reply 2.)
In their supplemental filing, Petitioners assert that shippers
opposed to this aspect of the proposed program overlook the fact that
the RRTF identified arbitration as the ideal mechanism for resolving
small rate cases, and argue that FORR was conceived as a workaround in
the event that the Board did not obtain the statutory authority to
require arbitration. (Pet'rs Suppl. 2.) As noted above, they also
assert that the proposed arbitration program would be lawful and
economically sound. (Id. at 2, 13.)
The Board will propose that any carrier that opts into the
voluntary, small rate case arbitration program would be exempt from any
final FORR rule adopted in Docket No. EP 755.\27\ To be clear,
inclusion of an exemption from FORR is not meant to indicate--one way
or another--a commitment that the Board will adopt FORR at the same
time as the small rate case arbitration program, or at some point
thereafter, but instead simply accounts for the possibility of such an
occurrence. Indeed, as explained above, the Board is seeking comments
on the backstop issue and the circumstances under which it would be
advisable to permit a carrier to withdraw from the arbitration program.
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\27\ Petitioners do not propose specific language for an
exemption from FORR in their Petition. As noted, they instead
propose this as a withdrawal option. Accordingly, the Board is
proposing its own FORR exemption language. See proposed Sec.
1108.33. In response to a concern from NGFA, (see NGFA Reply 13),
the Board will propose language that makes clear that carriers would
only be exempt from the FORR process and shippers could continue to
seek rate relief using the Board's other methodologies.
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The Board understands the concern of the shippers who argue that
allowing railroads to be exempt from FORR would eliminate shippers'
ability to pursue resolution using FORR, if the Board were to adopt it.
However, as explained above, the Board has long favored the resolution
of disputes using alternative dispute resolution whenever possible and
the RRTF found that arbitration would be an important means of
providing shippers with access to potential rate relief, particularly
in small cases. Creating a program in which carriers can obtain an
exemption from any process adopted in the FORR docket in exchange for
agreeing to arbitrate smaller rate disputes would incentivize railroads
to participate, and, in turn, create a means for shippers to obtain
resolution through arbitration.\28\ As such, the Board will propose--as
part of this proposed rule--that participation in the proposed
voluntary arbitration program would exempt a participating carrier from
any process adopted in the FORR docket while the carrier is
participating in the new arbitration program. The exemption would
thereby terminate, for example, upon the effective date of carrier
withdrawal, per exercise of the rights described below (if such
withdrawal rights are adopted), or upon the effective date of any Board
termination of the arbitration program, following the assessment
proposed at Sec. 1108.32 (see infra, Section XIII). An express
exemption along these lines obviates the need to include the carriers'
proposed opt-out provision as described above.
---------------------------------------------------------------------------
\28\ Although parties can use the Board's existing arbitration
process under 49 CFR part 1108 to resolve rate disputes, no parties
have voluntarily opted into that process for purposes of arbitrating
a rate dispute.
---------------------------------------------------------------------------
2. Change in Law
Petitioners propose that both railroads and shippers \29\ may
withdraw their consent to arbitrate under the proposed program if there
is a change in law; specifically, if the Board adopts a material change
to its existing rate reasonableness methodologies, creates a new rate
reasonableness methodology, or adopts a material change to the proposed
arbitration program. (Pet. 17.) Petitioners contend that, because
section 11708 requires that the arbitration panel consider the Board's
methodologies for setting maximum
[[Page 67594]]
lawful rates and appellate review of the panel's decision (discussed
below) would be limited, ``it is essential that parties have the right
to opt out'' of the proposed program should the Board either change the
rules of the program or add to, or materially change, its rate
reasonableness methodologies. (Id.) Petitioners propose that a
participating carrier would file a withdrawal notice no later than 30
days after the qualifying event and that the notice would result in the
immediate dismissal of any pending small rate case arbitration in which
the arbitration panel has not yet issued an arbitration decision. (Id.
at 17-18.)
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\29\ Even though shippers would only participate in the proposed
program on a case-by-case basis, it appears that Petitioners propose
allowing shippers this withdrawal right to afford them the same
ability to terminate pending arbitrations due to a change in the
law.
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NGFA proposes several modifications. First, it notes that another
new methodology (the Rate Increase Constraint) has been suggested to
the Board,\30\ and that if this methodology were adopted after the
proposed small rate case arbitration program is established, it would
likely trigger the carriers' right to withdraw. (NGFA Reply 10-11.)
NGFA argues that carriers participating in the proposed program should
not be permitted to withdraw if this methodology is ultimately adopted.
(Id. at 10-11, 13.) Second, NGFA argues that the Board should provide
an opportunity for either party to challenge the other's contention
that there has been a ``material change'' to the proposed program or to
the agency's existing rate reasonableness methodologies. (Id. at 12-
13.) Third, NGFA argues that pending arbitrations should not be
terminated under the ``change in law'' scenario. (Id. at 13.) Fourth,
NGFA requests clarification that once a carrier has withdrawn, a
shipper can challenge the rate under any methodology, including FORR.
(Id. at 13-14; see also Joint Shippers Suppl. 15 (expressing support
for NGFA's clarification).)
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\30\ The Rate Increase Constraint was proposed by the RRTF. See
RRTF Report 36-39. The Board held a hearing on revenue adequacy
issues raised in the RRTF Report on December 12-13, 2019, and asked
parties to address the RRTF recommendations--including the Rate
Increase Constraint--in their written testimony and at the hearing.
See Hr'g on Revenue Adequacy, Docket No. EP 761 et al. (STB served
Sept. 12, 2019).
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In their supplemental filing, Petitioners do not agree with NGFA's
suggestion that pending arbitrations be allowed to continue if there is
a withdrawal for a change in the law. (Pet'rs Suppl. 12.) However, they
do not object to shippers being allowed to challenge whether a change
in the law constitutes a ``material change,'' and do not object to
clarifying that, once a carrier has withdrawn from the proposed
program, a shipper would be allowed to challenge under any of the
Board's then-available rate-challenge methodologies, including FORR, if
the Board were to adopt that process. (Pet'rs Suppl. 6-7.) Petitioners
propose that any party would have five business days to challenge the
withdrawal, and the carrier would have 14 calendar days to file a
reply. (Id., App. A at 5.) The Chairman or an administrative law judge
(ALJ) would have 14 calendar days to issue a decision, and any pending
arbitrations would be stayed until the withdrawal issue is resolved.
(Id.)
The Board will propose a provision allowing any party to withdraw
due to a material change in the law. It would be reasonable for a
carrier or shipper to withdraw from the proposed program, including any
pending arbitration disputes, should the Board materially change the
rules of that program or one of its methodologies, which could inform
the arbitrators' decision.\31\ However, the Board will propose that
this withdrawal right would not apply to the adoption of a FORR
process. In other words, carriers could not exercise the right to
withdraw due to change in law if FORR is adopted at some point after
the arbitration program has begun. Under the Board's proposal, carriers
participating in the arbitration program would be exempt from FORR; as
such, the potential subsequent adoption of FORR would not amount to
such a regulatory change that would warrant allowing railroads the
ability to reconsider their participation in the arbitration
program.\32\
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\31\ Although Petitioners propose the change-in-law opt-out
right only for Board-enacted changes to the regulatory scheme, the
Board sees no reason that the right should not also apply if there
is a change in law resulting from Congressional or judicial action.
\32\ Additionally, the proposed provision allowing for
withdrawal where the Board materially changes an existing rate
reasonableness methodology or creates a new rate reasonableness
methodology would not be triggered where a litigant proposes and/or
the arbitration panel adopts or applies any methodology--novel or
otherwise--to resolve a particular arbitration brought under this
proposed program. Nor would it be triggered where the arbitration
panel adopts or applies such a methodology and its decision is
affirmed by the Board under the limited grounds for appellate review
described in Section XI, infra. As discussed in Section IX, infra,
parties would be able to urge the arbitration panel to consider
modified or entirely new rate review methodologies but, of course,
would have to persuade the arbitrators that such methodologies
comply with the statutory provisions governing both the panel's
decision and reasonableness of rates.
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The Board disagrees with NGFA's suggestion that, if the Rate
Increase Constraint is formally adopted by the Board as a rate review
methodology, it should also not be considered a change in law allowing
carriers to opt out. Adoption of this constraint would constitute a
significant change in the regulatory scheme for railroad rates and, as
such, the Board agrees that carriers should be given the opportunity to
withdraw from the proposed small rate case arbitration program if the
change were adopted. Similarly, the Board also will not propose NGFA's
suggestion that all pending arbitrations continue if a carrier
withdraws from the program due to a change in law. A change in the law
that occurs after an arbitration has begun could impact how a party
would have pleaded its case or whether it would have even participated
in arbitration to begin with; accordingly, where there is a change in
law falling under the applicable provision, pending arbitrations should
be terminated if a party exercises its withdrawal right. However,
parties are invited to comment on whether the Board should instead
allow pending arbitrations to proceed, so long as the change in law is
not applied to such pending arbitrations.
The Board will also propose that, if a party seeks to withdraw from
the small rate case arbitration program based on a change in the law,
other parties be permitted to challenge the withdrawal on the ground
that the change is not material. See proposed Sec. 1108.23(c)(2)(ii).
There are many scenarios in which the materiality of a change in the
law could be in dispute. Petitioners state that they have no objection
to this proposed modification. (Pet'rs Suppl. 6.) However, the Board
will make some adjustments to Petitioners' proposed procedures for
challenging materiality. Instead of permitting a party 30 days to
withdraw due to a change in law, the Board will propose a 10-day
window.\33\ Parties should be able to decide whether to continue
participating in the proposed small rate case arbitration program
fairly quickly after a change in law is adopted. So that other parties
are aware of a party's withdrawal, the Board will propose that it post
a copy of the notice on its website and that the carrier serve a copy
on any party with which it is currently engaged in arbitration.
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\33\ Unless otherwise specified, any reference to ``day'' in the
decision or regulations refers to calendar days.
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Additionally, the Board will clarify that an objection to a party's
withdrawal should be filed as a petition to the Board in a formal
docket. Instead of providing five days for an opposing party to
challenge a carrier's withdrawal due to a change in the law, the Board
will propose a 10-day window. The Board will also propose that the
withdrawing
[[Page 67595]]
party have five days to reply to the petition (instead of the 14 days
proposed by Petitioners) and that the petition shall be resolved by the
Board within 14 days from the filing deadline for the withdrawing
party's reply. These timeframes are all reasonable and will provide for
expeditious resolution of the relevant issues. The Board will also
propose that such petitions be decided by the Board, rather than the
Chairman or an ALJ, as the impacts of a decision regarding materiality
could be widespread. The Board invites parties to comment on whether
additional modifications are needed.
3. Case Volume
Petitioners propose that a railroad that has opted into the
proposed small rate case arbitration program on a term basis may also
withdraw its consent to arbitrate under the program if it faces more
than 25 arbitrations in a rolling 12-month period, or more than 10
simultaneous arbitrations. (Pet. 18.) Petitioners note that they do not
expect that volume, but they want to be able to reassess their long-
term commitment to the program should they face so many simultaneous
arbitrations. (Id. at 26.) Under their proposal, withdrawal would not
affect arbitration disputes under the proposed program in which the
parties have at least started their first mediation session,\34\ but
would result in the discontinuance of all disputes that have not yet
progressed to that stage. In response, NGFA argues that withdrawal
should not result in the dismissal of any pending arbitrations.\35\
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\34\ See infra Section IV.B.
\35\ In its reply, NGFA does not specify if its objects to the
termination of pending arbitrations based on withdrawal due to a
change in the law or case volume. The Board assumes that it opposes
termination of pending arbitrations in both instances.
---------------------------------------------------------------------------
The Board will not propose a right to withdraw from the arbitration
program based on case volume but will instead propose limiting the
number of arbitrations that a carrier can be subject to during a
rolling 12-month period. Because participation in Board-sponsored
arbitration is voluntary, as required under 49 U.S.C. 11708, and
because this program would be new, it is reasonable that a carrier who
has agreed to participate for a term of years only be required to
arbitrate a certain number of cases. However, rather than allowing
carriers that reach such a limit to withdraw from the program, the
Board believes that it would be more appropriate for carriers to remain
in the program but without having to face additional arbitrations.
Accordingly, the Board will propose that arbitrations that would exceed
the 25-cases/12-month limit would be postponed until such time as they
would not exceed the 25-case/12-month limit. In addition, under the
Board's proposal, cases will only count towards the 25-arbitration/12-
month limit discussed above upon commencement of the first mediation
session or, where one or both parties elect to forgo mediation (as
discussed below in Section IV.B), submission of the joint notice of
intent to arbitrate to the Board. See infra Section IV.C. The Board
sees no reason an arbitration should count toward the case limit if it
is concluded before parties have expended much time or resources.
Regarding the Petitioners' proposal to allow carriers to withdraw
after reaching 10 simultaneous arbitrations, this strikes the Board as
a far lesser threshold and a more likely occurrence. Accordingly, the
Board will not include a right to withdraw for instances in which there
are 10 simultaneous arbitrations (or require that any additional
arbitrations above this amount be postponed). The one-case per shipper
restriction (discussed below in Section III) and the 25-case limit
within a 12-month period should be sufficient to ensure that a carrier
is not inundated with arbitrations, while also providing shippers
access to an alternative dispute resolution process.
To implement the 25-case/12-month limit, the Board will propose
that where a carrier receives a notice of intent to arbitrate from a
shipper that would initiate an arbitration exceeding the limit, the
carrier may inform the Board's Office of Public Assistance,
Governmental Affairs, and Compliance (OPAGAC), as well as inform the
shipper who initiated the arbitration. Under the proposal, that
arbitration (and any arbitrations that are subsequently initiated)
would be postponed until the number of arbitrations is once again below
the 25-case/12-month limit. OPAGAC would notify the shippers whose
arbitrations are postponed.
III. One-Case Limit
Petitioners propose that a shipper not be permitted to bring more
than one arbitration at a time against a participating railroad. (Pet.
11.) Petitioners contend that this limitation is needed to prevent
shippers from avoiding the relief cap by splitting or
``disaggregating'' a case that could be brought as a single rate
challenge into multiple cases. (Id. at 11, 27.) They propose that
shippers would, however, be permitted to challenge rates for multiple
traffic lanes in the same arbitration. (Id. at 11.) They propose that
once the arbitration panel issues its decision, the shipper would be
free to bring another small rate case arbitration against that same
participating carrier. (Id. at App. A at 5.)
Olin and U.S. Wheat argue that the one-case limitation is one of
several reasons why proceeding with FORR is preferable. (Olin Reply 11;
U.S. Wheat Suppl. 7.) Olin notes that, because of this limitation,
shippers would have to aggregate separate claims, yet the rate cap
would apply regardless of whether a shipper is challenging a single
rate or multiple rates, whereas the proposed FORR process includes no
such limitations. (Olin Reply 11.) In their supplemental filing,
Petitioners respond that shippers are not required to aggregate claims,
and that the one-case limit is intended instead to prevent the improper
disaggregation of large rate claims to take advantage of the
arbitration process. (Pet'rs Suppl. 18-19.) \36\
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\36\ NGFA states that the Board should clarify that the one-case
limit prevents the filing of an additional case against the same
carrier only up until the point at which the original arbitration
decision in the first case is issued, regardless of whether that
decision is appealed. (NGFA Reply 12; see also Joint Shippers Suppl.
10.) The text of Petitioners' proposed regulations (which the Board
includes in its proposal) states that the limit resets ``when the
arbitral panel issues its arbitration decision.'' (Pet., App. A at
5.) Accordingly, NGFA's request for further clarification does not
appear to be necessary. However, the Board will propose language
stating that the limit also resets when an arbitration is withdrawn
or dismissed, including instances in which the parties reach a
settlement. See proposed Sec. 1108.24(c).
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The Board will propose a one-case limit as part of the proposed
arbitration program. The Board has noted its concern about the
possibility of shippers filing a number of small rate cases when it
would be more appropriate for those rates to be challenged as part of
one larger case. See Simplified Standards, EP 646 (Sub-No. 1), slip op.
at 32-33 (``The Board has ample discretion to protect the integrity of
its processes from abuse, and we should be able to readily detect and
remedy improper attempts by a shipper to disaggregate a large claim
into a number of smaller claims, as the shipper must bring these
numerous smaller cases to the Board.''); see also E.I. DuPont de
Nemours & Co. v. CSX Transp., Inc., Docket No. NOR 42099 et al., slip
op. at 3 (STB served Jan. 22, 2008). In those cases, the Board
indicated that it would monitor shipper filings to ensure that no such
abuse of its processes occurs. In the arbitration context, however,
this would not be possible. As discussed below (see infra Section XI),
arbitrations would be kept confidential from the Board (at least until
an appeal), so the Board would be
[[Page 67596]]
unaware of what rates a shipper has currently challenged. It would also
be impractical to leave such oversight to arbitration panels. Again,
arbitrations would be confidential and presumably handled by different
arbitration panels, making it difficult for any given panel to assess
aggregation issues.
Concerns over disaggregation of rate challenges aside, a one-case
limit would be beneficial by ensuring that more shippers have the
opportunity to participate in the arbitration program. For example, if
a single shipper were to file 25 rate arbitrations against a carrier
simultaneously and thus reach the volume cap (discussed above), that
would delay other shippers from pursuing their own arbitrations against
that carrier because those cases would be postponed. In general,
limiting the number of cases brought would also allow the Board and
stakeholders to develop familiarity with the arbitration process
gradually.
The Board acknowledges that a one-case per-carrier-limit would
affect the relief available to shippers (at any given time) that want
to bring multiple cases against the same carrier simultaneously.
However, the Board anticipates that the shippers most likely to use
this arbitration process, including its limitations on relief, may be
less likely to bring multiple cases against the same carrier. As the
Joint Shippers state, ``many small shippers probably would not have
enough qualifying captive lanes to bring multiple disputes.'' (Joint
Shippers Suppl. 6.) Moreover, shippers would still be able to arbitrate
multiple cases against different carriers at the same time. Finally,
for those shippers that want to bring multiple cases for rates charged
by the same carrier, the Board's formal rate reasonableness procedures
remain available, including those designed for smaller disputes.
However, the Board invites parties to comment on the impact and
appropriateness of the proposed one-case limit and whether there are
other methods of dealing with the issue of disaggregation. For example,
other possible approaches include allowing a shipper to bring two (or
more) concurrent arbitrations so long as the lanes at issue do not
share facilities, or permitting a second arbitration to be brought
after the close of the evidentiary record--rather than awaiting the
decision of the arbitration panel--in a pending arbitration (thereby
allowing a second arbitration to be brought sooner).\37\
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\37\ The Board notes that although shippers would not be able to
challenge rates in simultaneous arbitrations under the one-case
limit, there would be no limit on the number of rates they could
challenge within a single arbitration, though the $4 million/two-
year relief cap would apply. The Board further notes that shippers
are not prohibited from challenging multiple rates charged by the
same carrier in sequential arbitrations.
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IV. Pre-Arbitration Procedures and Timelines
A. Initial Notice
Petitioners propose that a shipper wishing to arbitrate a small
rate dispute using the proposed program submit to the participating
carrier a written notice of its intent to arbitrate, which must include
information sufficient to indicate the dispute's eligibility for
arbitration.
The Board agrees, and it will propose that the arbitration process
be initiated by a shipper's submission of a written notice (referred to
herein as the Initial Notice) to the participating carrier that
includes information demonstrating that the dispute qualifies for the
proposed small rate case arbitration program. The Initial Notice would
serve as the formal initiation of the arbitration process and would
also ensure that shippers are participating in arbitration voluntarily,
consistent with section 11708. (Carriers' voluntary participation would
be evidenced through their opt-in notice, see supra Section II.A.)
However, unlike Petitioners' proposal, the Board will propose that
the shipper also submit a copy of the Initial Notice to OPAGAC. This
would allow OPAGAC, which oversees the agency's alternative dispute
resolution processes, to be informed when the arbitration process is
being used as it happens (rather than learning about it after the
fact). As noted above, this would also help OPAGAC monitor the number
of pending arbitrations to determine if the 25-cases/12-month limit has
been reached.\38\ However, specific information regarding pending
arbitrations, including the identity of the parties, would not be
disseminated within the Board beyond the alternative dispute resolution
functions within OPAGAC. The Board will propose that the Initial Notice
be submitted by email to <a href="/cdn-cgi/l/email-protection#d4a6b7a4b594a7a0b6fab3bba2"><span class="__cf_email__" data-cfemail="36445546577645425418515940">[email protected]</span></a>.
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\38\ As noted above, in instances where the Initial Notice
initiates an arbitration exceeding the 25-case/12-month cap, the
Board will propose that the carrier may notify OPAGAC, as well as
the shipper who submitted the Initial Notice to the carrier. Under
the Board's proposal, OPAGAC would then confirm that the cap has
been reached and inform the shipper (and any other subsequent
shippers) that the arbitration is being postponed, along with an
approximation of when the arbitration can proceed and instructions
for reactivating the arbitration once the carrier is again below the
cap.
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The Board also will propose that OPAGAC provide a letter to the
parties confirming initiation of the process. As discussed in more
detail below, the Board will further propose that the Initial Notice
and the OPAGAC confirmation letter be kept confidential.
B. Mediation
Petitioners propose that, following the shipper's submission of the
Initial Notice, the parties then engage in pre-arbitration mediation,
conducted outside of any Board process and directed by a mediator
designated by the parties. Under Petitioners' proposal, the mediation
period would be 30 calendar days, beginning on the date of the first
mediation session. (Pet., App. A at 5.) Olin responds that requiring
mediation would only serve to establish another roadblock to timely
rate relief, and notes that the Board only proposed requiring mediation
under the FORR process if both parties consent. (Olin Reply 10.) NGFA
proposes that parties be allowed to agree by mutual consent to waive
mediation. (NGFA Reply 9.) It also proposes that mediation last no more
than 30 days, whereas Petitioners suggest that it last a minimum of 30
days. (Id.) Lastly, NGFA proposes that the Board liberally grant
requests to extend the mediation period if the parties agree. (Id.) In
its supplement, Petitioners agree with NGFA's proposed changes, but
note their belief that it would not be necessary for the parties to
obtain extensions of the mediation period from the Board. (Pet'rs
Suppl. 5.)
The Board observes that a mediation requirement may help facilitate
settlement. If a dispute can be settled through mediation, it would
allow parties to avoid the expense of arbitration. However, the Board
also agrees with several shipper interests that, in some instances, the
parties may have already engaged in extensive negotiations and
therefore may wish to proceed directly to arbitration. (NGFA Reply 9;
Olin Reply 10.) The Board will propose allowing parties to engage in
mediation prior to the arbitration phase if they mutually agree, but
they will not be required to do so. If one or both parties decide that
they do not want to mediate, they may proceed directly to arbitration.
The Board notes that this approach does not mirror the proposal in
FORR, where the agency is proposing that mediation be mandatory,
consistent with existing rate reasonableness procedures used in
adjudications before the Board. See FORR SNPRM, EP 755, slip op. at 38
(STB served Nov. 15, 2021). However, arbitration, like mediation, is
itself a form of alternative dispute resolution, and requiring parties
to engage serially in two forms of alternative dispute resolution as an
alternative to adjudication could
[[Page 67597]]
discourage parties from using the arbitration process in some
instances. In addition, allowing parties the option of bypassing
mediation would expedite the process, which is one of the central goals
of arbitration. Parties are invited to comment on whether,
alternatively, the mediation phase should be eliminated entirely.
The Board also agrees that, as a default, a 30-day mediation period
would provide sufficient time for the parties to mediate while also
ensuring that the overall arbitration process progresses. Accordingly,
the Board will propose that the default mediation period shall be 30
days, measured from the date of the first mediation session, but that
the parties may agree to a longer or shorter mediation period. As for
timing, the Petition does not state how long after the Initial Notice
is filed that mediation should begin. Accordingly, the Board will
propose that the parties would be required to schedule their first
mediation session ``promptly and in good faith'' after the Initial
Notice is submitted to the participating carrier. See proposed Sec.
1108.25(b). Parties are invited to comment on whether a more defined
period should be adopted. As for extensions of the mediation phase,
because the mediation would not be conducted by the Board, there would
be no need for the parties to seek Board approval of an extension of
the mediation period.
C. Joint Notice To Arbitrate
Petitioners propose that, if mediation is unsuccessful, the parties
submit to OPAGAC a joint notice of their intent to arbitrate under the
proposed program. (Pet., App. A at 5.) The Board will propose that the
parties file a joint notice to arbitrate (referred to herein as the
Joint Notice)--which would include the basis for the Board's
jurisdiction over the dispute and the basis for the parties'
eligibility to participate in the proposed small rate case arbitration
program \39\--with the Board when mediation is unsuccessful or if the
parties do not agree to mediate. As with the Initial Notice, specific
information regarding pending arbitrations that is contained in the
Joint Notice, including the identity of the parties, would not be
disseminated within the Board beyond the alternative dispute resolution
functions within OPAGAC. The Board will also propose that the Initial
Notice be submitted by email to <a href="/cdn-cgi/l/email-protection#dcaebfacbd9cafa8bef2bbb3aa"><span class="__cf_email__" data-cfemail="eb99889b8aab989f89c58c849d">[email protected]</span></a>.
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\39\ Because the Board will propose that parties not be required
to participate in mediation, the Board does not propose to require
that the parties state in the Joint Notice that they have engaged in
mediation.
---------------------------------------------------------------------------
Petitioners further propose that the Joint Notice include ``the
parties' agreement to arbitrate under the rules of this part.'' (Pet.,
App. A at 6.) It is unclear if the Petitioners intended for this
requirement to simply mean a general statement that they agree to
arbitrate or a written arbitration agreement, as is required in the
existing arbitration regulations. See 49 CFR 1108a.5(g). Regardless,
the Board will not propose that either requirement be part of the Joint
Notice, so as to maintain the confidentiality of the Joint Notice. (See
infra Section XI-B.)
Petitioners also propose that the Joint Notice indicate the
``requested relief,'' which presumably would include whether the
parties have agreed to a different relief cap than set forth in the
regulations. (Pet., App. A at 5-6.) As discussed in Section IX below,
the Board will propose a relief cap of $4 million per arbitration. The
parties' decision on whether to agree to a different relief cap may not
be known at the time they submit the Joint Notice. Accordingly, the
Board will propose that any agreement to a different relief cap be
noted in the confidential summary filed at the conclusion of the
arbitration (see infra Section XI), rather than in the Joint Notice.
The Petition includes no deadline for filing the Joint Notice after
mediation has concluded. The Board will propose that the Joint Notice
be submitted not later than two business days following the end of
mediation (even if mediation concludes before the end of the 30-day
mediation period). See proposed Sec. 1108.25(c)(1). This would ensure
that the process under the arbitration program continues to move
forward in a timely manner. The Board will propose that the Joint
Notice be submitted by email to <a href="/cdn-cgi/l/email-protection#1062736071506364723e777f66"><span class="__cf_email__" data-cfemail="8dffeefdeccdfef9efa3eae2fb">[email protected]</span></a>.
V. Arbitration Panel Selection and Commencement
The Petition proposes that arbitration under the proposed program
be conducted by a panel of three arbitrators, the selection of which
would not be limited to the arbitration roster established at 49 CFR
1108.6(b). (Pet. 12.) Petitioners acknowledge that the existing
arbitration program at part 1108 requires selection of an arbitrator
from the Board's arbitration roster, but contend that permitting
parties to select arbitrators not on the Board's roster would allow
them to select an arbitrator with particular expertise in the market
for the relevant commodity, an arbitrator with whom the party had a
good experience in a previous non-rate arbitration, or another
qualified individual that a party believes would be qualified to
arbitrate the case, regardless of that person's inclusion on the
Board's arbitration roster. (Id. at 23-24.) Petitioners believe that
such flexibility would remove a potential barrier to parties wishing to
arbitrate their rate dispute. (Id. at 24.)
Under Petitioners' proposal, each party would select one
arbitrator, and the two party-selected arbitrators would then select
the third arbitrator from a list compiled jointly by the parties. (Id.)
The Petition proposes that each party may object to the other's
selected arbitrator ``for cause,'' including, among other things, a
conflict of interest or actual or perceived bias toward the objecting
party. (Id.) The arbitrator selected by the two party-selected
arbitrators would serve as the panel's lead arbitrator, and would be
responsible for establishing all rules deemed necessary for each
arbitration proceeding--including those with regard to discovery, the
submission of evidence, and the treatment of confidential information--
as well as generally ensuring that the arbitration procedures are
followed. (Id., App. A at 6-7.) Any disputes over the selection of
party-appointed arbitrators or the lead arbitrator would be resolved by
the Chairman. (Id.) These processes would also be used to replace an
arbitrator unable to serve due to incapacitation. (Pet., App. A at 6-
7.) Each party would pay the cost of its selected arbitrator, and the
parties would share the cost of the lead arbitrator. (Id.)
Olin responds that the fact that the parties would have to pay for
the arbitrators and could object to each other's arbitrators on grounds
not provided for under the existing arbitration rules (such as
``perceived bias or animosity'' and ``adverse business dealings'') make
the proposed program inferior to FORR. (Olin Reply 11.) Similarly, U.S.
Wheat argues that having to pay for arbitrators makes arbitration more
costly than FORR. (U.S. Wheat Suppl. 6.)
A. Eligible Arbitrators
The Board agrees that permitting parties to select arbitrators who
are not on the Board's arbitration roster may better incentivize
parties to participate in the small rate case arbitration program, and
so will propose allowing parties to select arbitrators not on the
Board's roster. Although section 11708 provides for the selection of
arbitrators possessing certain qualifications from the Board's
arbitration roster as a default, that default applies only where the
parties have not ``otherwise agreed'' to a different selection process.
In other words, as Petitioners point out, section
[[Page 67598]]
11708 explicitly permits the use of non-roster arbitrators by mutual
consent. The Board will propose requiring carriers and shippers to
affirmatively state their agreement to potentially use non-roster
arbitrators in their opt-in notice and the Initial Notice,
respectively.
Under section 11708(f)(1), to be included on the Board's roster of
arbitrators, a person must have ``rail transportation, economic
regulation, professional or business experience, including agriculture,
in the private sector.'' The Board's regulations further require that
``[p]ersons seeking to be included on the roster must have training in
dispute resolution and/or experience in arbitration or other forms of
dispute resolution.'' 49 CFR 1108.6(b). However, as discussed above,
because parties would not have to select arbitrators from the Board's
roster under the proposed program, these requirements would not
necessarily apply to arbitrations under proposed 49 CFR part 1108,
subpart B. Although the proposed regulations do not include specific
qualification requirements for non-roster arbitrators, the Board
invites comment on whether the 49 CFR 1108.6(b) qualifications (or
others) should be required for arbitrators under the proposed program,
particularly for the lead arbitrator in light of their responsibilities
concerning discovery, evidence, and confidentiality.
B. Arbitrator Selection
The Board will propose allowing parties to object to the opposing
side's selected arbitrator for cause. The bases for objection proposed
by Petitioners would be consistent with section 11708. Moreover,
because parties would not necessarily select arbitrators that have been
approved by the Board via its roster, the parties should have the
ability to seek to disqualify individuals where there are substantial
and legitimate questions as to whether such persons can satisfy the
independence requirements of section 11708(f)(2).\40\ In response to
Olin's concern, the Board will propose language that specifically ties
for-cause objections to the independence requirements of section
11708(f)(2). See proposed Sec. 1108.26(b)(1).
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\40\ The Board notes that Petitioners propose that parties may
choose party-appointed arbitrators ``without limitation.'' (Pet.,
App. A at 7.) Theoretically, this would allow a party to select one
of its own employees. However, if a party were to do so, the
opposing party could object and seek to have that individual
stricken for cause over concerns about the individual's ability to
``perform their duties with diligence, good faith, and in a manner
consistent with the requirements of impartiality and independence.''
Section 11708(f)(2). Nonetheless, the Board expects that for-cause
challenges would be invoked rarely, such as when an arbitrator has
financial ties to a party.
---------------------------------------------------------------------------
The Board will propose that any for-cause objections be ruled on by
an ALJ rather than the Chairman.\41\ This would help ensure that the
Chairman does not become aware of the arbitration during its pendency.
The ALJ would also be well-equipped to rule on this matter. The Board
will propose that the hearing before the ALJ can still be held
telephonically (or virtually) and under the same expedited timelines
proposed by Petitioners. Parties raising objections would inform
OPAGAC, which will then help arrange the hearing with the ALJ.
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\41\ The Board has a Memorandum of Understanding with the
Federal Mine Safety and Health Review Commission to employ the
services of its ALJs on a case-by-case basis to perform discrete,
Board-assigned functions such as adjudicating discovery disputes in
pending Board cases.
---------------------------------------------------------------------------
The Board will propose that the ALJ's ruling on the objections be
issued in a short, written order rather than a ruling during the
telephonic or virtual conference. As discussed in more detail in the
section on confidentiality, see infra Section XI, the Board will
propose that the ALJ's order be deemed confidential. The Board also
invites parties to propose alternative means of addressing for-cause
objections, such as having the objections ruled on by one of the
agency's directors or if they would prefer such rulings to be made by
the Chairman.
Additionally, the Board will not include Petitioners' proposal that
the Chairman select the lead arbitrator if the party-appointed
arbitrators are unable to agree. Such a determination is best left to
the party-appointed arbitrators and would ensure that the Chairman does
not become aware of the arbitration during its pendency, as mentioned
above. Accordingly, the Board will propose that, if the party-appointed
arbitrators cannot agree, they shall select from the Board's roster of
arbitrators using the alternating strike method set forth in 49 CFR
1108.6(c). See proposed Sec. 1108.26(c)(2). Parties may suggest
alternative methods in their comments.
C. Cost of Arbitrators
Under section 11708(f)(4), ``[t]he parties shall share the costs
incurred by the Board and arbitrators equally, with each party
responsible for paying its own legal and other associated arbitration
costs.'' As such, the Board will propose that parties pay the cost for
their own arbitrator, consistent with the requirements of 49 U.S.C.
11708(f)(4). Olin and U.S. Wheat argue that this is a cost that
shippers would not incur in a FORR case. However, the Board notes that
parties are required to pay the costs for arbitration under section
11708(f)(4) and 49 CFR part 1108, subpart A. See 49 CFR 1108.12(b).\42\
---------------------------------------------------------------------------
\42\ If the Board ultimately adopts this proposed arbitration
program, it could consider the possibility of creating a system in
which the agency pays the party-selected arbitrator's costs for
parties that are able to demonstrate financial hardship.
---------------------------------------------------------------------------
The statute does not specify how ``shar[ing] the costs . . .
equally'' would apply in arbitrations in which there are three or more
parties. Under Petitioners' proposal, the shipper and defendant
``carrier(s)'' would each pay one-half of the cost of the lead
arbitrator. This means that if a shipper challenges a multi-carrier
rate, the shipper would bear 50% of the cost of the lead arbitrator
while the defendant carriers would split the remaining 50% cost among
themselves. However, this may be contrary to Congress' intent. For
example, if a shipper challenges an interline rate by two carriers,
``shar[ing] the costs . . . equally'' could be interpreted as meaning
that the parties should divide the costs three ways (with each party
paying an equal third). Given the ambiguity in the statute, the Board
will propose that parties to arbitration ``will share the cost of the
lead arbitrator equally,'' mirroring the language from the statute.\43\
See proposed Sec. 1108.26(c)(4). This language would give the parties
in an arbitration with three or more parties flexibility to negotiate
each party's share of the lead arbitrator's cost on either a per-side
or per-party basis.
---------------------------------------------------------------------------
\43\ See 49 CFR 1108.12(b) (adopting the exact text of the
statutory language regarding arbitration costs).
---------------------------------------------------------------------------
D. Selection Period
The Board will propose adopting Petitioners' suggested deadlines
for arbitrator selection. (See proposed Sec. 1108.26.) The Board
acknowledges that 49 U.S.C. 11708(e)(1) states that ``[a]n arbitrator
or panel of arbitrators shall be selected not later than 14 days after
the date of the Board's decision to initiate arbitration.'' Under the
proposed program, arbitrator selection may not be complete within 14
days if the parties choose to engage in mediation. However, 49 U.S.C.
11708(e)(4) permits the Board to extend the timelines upon the
agreement of all parties in the dispute. Accordingly, the Board will
propose that, as part of its opt-in notice, a railroad provide the
Board with a statement that it agrees to extend the 14-day deadline in
any arbitration brought under the program. In addition, the
[[Page 67599]]
Board will propose that a shipper include, as part of the Initial
Notice that is served on the participating carrier and OPAGAC, a
statement that it likewise agrees to extend the arbitrator selection
deadline. The letter from OPAGAC confirming initiation of the
arbitration process (see supra Section IV-A) would include a
confirmation of the parties' agreement to an extension (as well as
their agreement to allow for the selection of non-roster arbitrators).
E. Arbitration Commencement
The Board will propose that, within two business days after the
arbitration panel is selected, the lead arbitrator shall commence the
arbitration process in writing, consistent with Petitioners' proposal.
(Pet., App. A at 7.) The Board notes that 49 U.S.C. 11708(c)(1)(D)
requires that arbitration commence not later than 40 days after the
date on which a written complaint is filed ``or through other
procedures adopted by the Board in a rulemaking proceeding.'' Under the
Board's proposal, it is possible that the arbitration phase may not
begin within 40 days from the submission of the Initial Notice, due to
the presumptive 30-day mediation requirement (which, again, the parties
can forgo if they do not mutually consent). However, the Board finds no
inconsistency with the 40-day statutory requirement, as it considers
the mediation phase to be part of the overall ``arbitration process.''
F. Arbitration Agreement
Petitioners propose a provision that would require that the rules
of the Small Rate Case Arbitration Program be incorporated by reference
into any arbitration agreement into which the parties enter. (Pet.,
App. A at 6 (proposed Sec. 1108a.5(d)).) Petitioners' proposal appears
to make the need for an arbitration agreement discretionary. However,
an agreement signed by all participants to the arbitration helps ensure
that the issues for the arbitration panel are clear and the
participants take the time to familiarize themselves with the
arbitration rules. Accordingly, the Board will propose a requirement
that the parties, with the help of the arbitration panel, create a
written arbitration agreement. See proposed Sec. 1108.27(b). The Board
has modeled this provision on the regulation from the existing
arbitration process. See 49 CFR 1108.5(g).
VI. Record-Building Procedures
Petitioners propose that, once the arbitrators are selected, there
would be a 45-day period for the parties to engage in limited discovery
and that the arbitration panel has discretion to set the schedule and
prescribe the format of the parties' evidence. (Pet. 13, 15.) They also
propose that the Board's Office of Economics (OE) provide unmasked
confidential Carload Waybill Sample data--subject to certain commodity
and time limitations--to each party within seven days of filing the
Joint Notice with OPAGAC. (Id. at 13.)
A. Procedural Schedule
There appear to be several inconsistencies between what Petitioners
propose in the body of their Petition and the text of their proposed
regulations in Appendix A of their Petition regarding the procedural
schedule for arbitration. For example, with respect to the 45-day
discovery process, the Petition is unclear as to when that 45-day
period would commence. (Compare Pet. 13 (the date on which the Joint
Notice is filed) with Pet., App. A at 7 (the arbitration commencement
date, which is two business days after the arbitration panel is
appointed). With respect to terminology, the Petition refers to a 45-
day period for discovery, (Pet. 13), but the proposed regulations
themselves refer not to a discovery period but a 45-day ``evidentiary
phase,'' (Pet., App. A at 7), which could presumably encompass more
than just discovery (e.g., submission of pleadings and evidence). In
addition, Petitioners state that the procedural schedule for the
submission of pleadings or evidence will be set by the ``arbitration
panel,'' (Pet. 15), even though they have indicated that the ``lead
arbitrator'' shall establish all rules deemed necessary for
arbitration, including with regard to ``the submission of evidence,''
(Pet., App. A at 6-7).
The Board will propose a procedural schedule, consistent with
section 11708, beginning with a 90-day evidentiary phase comprised of
45 days for discovery and an additional 45 days for the submission of
pleadings or evidence. Although the arbitration panel may extend the
``discovery sub-phase'' upon request, the Board will propose that this
would not automatically extend the entire evidentiary phase beyond 90
days. See proposed Sec. 1108.27(c). In other words, if the ``discovery
sub-phase'' were extended, the ``submission sub-phase'' would be
correspondingly shortened. However, the parties may agree to extend the
entire evidentiary phase or a party may request an extension from the
arbitration panel.\44\ Furthermore, the discovery/evidentiary phase
would run from commencement of the arbitration (i.e., two business days
after the arbitration panel is appointed), not from the submission of
the Joint Notice. See proposed Sec. 1108.27(c)(2). This would ensure
that the days needed for arbitration panel selection are not counted as
part of the discovery/evidentiary phase. Accordingly, because the
Board's proposed procedural schedule may not conclude within the
timeline set forth in section 11708 if the parties engage in mediation,
the Board will require carriers and shippers that utilize the proposed
small rate case arbitration process to provide their consent to extend
these deadlines in their opt-in notice and Initial Notice,
respectively.
---------------------------------------------------------------------------
\44\ Petitioners propose that the evidentiary phase only be
extended upon mutual agreement of the parties. (Pet., App. A at 7.)
This may have been an effort by Petitioners to subject arbitration
to rigid deadlines comparable to those proposed in Final Offer Rate
Review, EP 755 (STB served Sept. 12, 2019). However, section
11708(e)(2) permits parties to make, and for the arbitration panel
to grant, unilateral requests for an extension. In keeping with the
statute, the Board will permit unilateral requests for extension,
but notes its expectation that the arbitration panel will grant such
extensions only in extraordinary circumstances and should attempt to
adhere to the 90-day default evidentiary period set forth in the
statute to the greatest extent practicable.
---------------------------------------------------------------------------
Olin states in its reply that Petitioners ``seek to enable a
defendant a fair opportunity to respond to the complainant shipper's
case-in-chief, but fail to provide for shipper rebuttal and the right
to be able to close the record,'' as provided for under the proposed
FORR process. (Olin Reply 12.) It is the Board's view that the lead
arbitrator should set the schedule and format of the parties' evidence,
as is currently provided for in the existing arbitration regulations.
See 49 CFR 1108.7(b). Arbitration is intended to be a flexible process,
and the lead arbitrator will be able to set rules for the presentation
that best suit the nature of the dispute, with the input of the
parties. The lead arbitrator may, of course, confer with the other
arbitrators on the panel regarding these matters.
B. Discovery Limits
The Board will propose limiting discovery to 20 written document
requests, five interrogatories, and no depositions, as suggested by
Petitioners. These limits would be broad enough to allow each party to
obtain the information necessary to make its case to the arbitration
panel, but not so broad as to place an extensive burden on the opposing
party and necessitate a prolonged discovery phase.
Olin argues that discovery limitations are another instance where
the proposed program would be inferior to the FORR
[[Page 67600]]
process which, as proposed, includes no limitations on discovery. (Olin
Reply 11.) However, arbitration is intended to be a streamlined process
that reduces the costs and time often associated with adjudication. The
Board invites parties to comment on these proposed limits; in
particular, parties are invited to comment on whether broader discovery
should be allowed in light of the fact that the Board is proposing that
shippers may use a non-streamlined presentation to establish market
dominance. See infra Section VII.B.
Again, the Board will propose that the lead arbitrator--not the
arbitration panel--be responsible for managing discovery, the
submission of evidence, and the treatment of confidential information,
consistent with the requirements of the existing arbitration process.
See 49 CFR 1108.7(b).
C. Waybill Data
Petitioners propose that each party in the arbitration
automatically be given access to Waybill data that contains: (a) The
most recent year, (b) movements with a revenue to variable cost (R/VC)
ratio above 180%, (c) movements on the defendant carrier, and (d)
movements with the same five-digit Standard Transportation Commodity
Code (STCC) as the challenged movements. They propose that, should a
party need more data than provided in this automatic release, it may
``seek broader release of the STB Waybill Sample pursuant to existing
procedures'' or through discovery. (Pet. 13.)
The Joint Shippers respond that automatic release of Waybill data
should not be limited to only one year. They note that the Board allows
the release of up to four years of data in Three-Benchmark cases, as
one year of data was deemed insufficient in those cases to provide a
meaningful benchmark for comparison purposes. (Joint Shippers Suppl.
11.) The Joint Shippers also suggest that the Waybill data should not
be limited to the same five-digit STCC as the commodity at issue. They
note that some commodities, particularly chemicals, have similar
characteristics and argue that guaranteeing access to Waybill Data at
the two-digit STCC level will provide more relevant data for performing
a comparative analysis. (Id. at 12.) The Joint Shippers further argue
that the Waybill data should not be limited to only the defendant
carrier but should be provided for all railroads, as limiting
guaranteed access to only the defendant carrier's Waybill data could
prevent shippers from relying on methodologies that consider movements
on other railroads, including the ACC's proposed benchmarking
methodology. (Id.) Finally, the Joint Shippers note that the carriers'
suggestion that such Waybill data could be sought through the standard
Waybill access procedures or discovery requests would ``defeat the
advantages of arbitration by adding to the time and expense.'' (Id.)
In their supplemental filing, Petitioners state that they disagree
that more Waybill data should be required as a matter of right. (Pet'rs
Suppl. 18 n.27.)
1. Waybill Data: Time Period, Commodity, and Carrier
The Board will propose a provision that requires the automatic
disclosure of confidential Waybill data to each party to an
arbitration, but for the preceding four years rather than the one year
proposed by Petitioners. See proposed Sec. 1108.27(g). The Joint
Shippers correctly point out that the Board allows parties in Three-
Benchmark cases access to the unmasked Waybill Sample data of the
defendant carrier for the four years that correspond with the most
recently published Revenue Shortfall Allocation Methodology (RSAM)
figures. See Waybill Data Released in Three-Benchmark Rail Rate Procs.,
77 FR 15969 (March 19, 2021), EP 646 (Sub-No. 3) (STB served Mar. 12,
2012). As noted above, the arbitration panel would be required to
consider the Board's methodologies for setting maximum lawful rates.
Parties may wish to present arguments to the panel on what a reasonable
rate would be under the Three-Benchmark methodology,\45\ which would
require the same access to the Waybill sample as permitted in such
proceedings. Moreover, the Board has previously indicated that there
are additional benefits to providing four years of data. Waybill Data,
EP 646 (Sub-No. 3), slip op. at 5, 9 (finding that more years of data
would increase the number of observations of comparable traffic and
allow for an assessment of changes in railroad pricing over a period of
years).
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\45\ See Waybill Data, EP 646 (Sub-No. 3), slip op. at 5 (``[A]
party may, for example, select its comparison group from data across
all four years and argue that a group selected from all four years
is the most comparable to the movements at issue.'').
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The Board will not, however, propose that the Waybill data that is
automatically disclosed include commodities at the two-digit STCC level
or railroads that are not parties to the arbitration. While arbitration
disputes may involve attempts by shippers to demonstrate rate
unreasonableness based on a comparison of rates between the arbitrating
carrier and other carriers, not all arbitrations will involve such
arguments. Given the importance of maintaining the confidentiality of
the Waybill Sample, it would be imprudent to require the release of
data that may not needed in some cases. Instead, if a party desires
access to the Waybill Sample for data regarding other years, other
commodity traffic of the defendant carrier, or other carriers, the
Board will propose that the party file a request pursuant to 49 CFR
1244.9(b)(4). As with requests for Waybill data in other contexts, see
49 CFR 1244.9(a), the Director of OE will determine if the request
satisfies the requirements of Sec. 1244.9(b)(4).\46\
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\46\ The Board does not permit complainants in Three Benchmark
proceedings to include non-defendant carrier traffic in its
comparison group. See Simplified Standards, EP 646 (Sub-No. 1), slip
op. at 82-83. However, under the proposal here, shippers would be
permitted to present new or modified rate reasonableness
methodologies that consider additional market-based standards, among
other factors. (See infra Section IX.A.1.) See also Expanding Access
to Rate Relief, EP 665 (Sub-No. 2), slip op. at 14-15 (STB served
Aug. 31, 2016) (seeking comment on whether to allow comparisons of
non-defendant traffic). Accordingly, it is possible that requests
for non-defendant carrier Waybill data could satisfy the criteria of
49 CFR 1244.9(b)(4), including that ``[t]he STB Waybill Sample is
the only single source of the data or obtaining the data from other
sources is burdensome or costly, and the data is relevant to issues
pending before the Board'' or arbitration panel. 49 CFR
1244.9(b)(4)(i).
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Whether determinations by the Director of OE for Waybill data under
Sec. 1244.9(b)(4) would be considered an ``opinion'' or ``order'' that
must be made available for public inspection under the Freedom of
Information Act (FOIA) is unclear. See 5 U.S.C. 552(a)(2). The Board
will propose that the Director's determinations would not be posted in
a formal docket (as such determinations are for formal proceedings and
``other user'' requests), though parties are free to comment on whether
or not publication is required under FOIA. It should be noted, however,
that even if the Board were to conclude the Director's determinations
do not need to be made public, such documents may nonetheless have to
be made available in response to a FOIA request under 5 U.S.C.
552(a)(3). (See infra Section XI.B for further discussion of issues
with confidentiality and FOIA in this proposed arbitration process.)
Lastly, the Board will not propose permitting shippers to obtain
additional Waybill data through discovery, so that the Board can ensure
that this data is properly protected.
2. Access to Waybill Data Under 49 CFR 1244.9
To effectuate both the automatic disclosure of confidential Waybill
data and the potential release of additional Waybill data, the Board
will propose
[[Page 67601]]
amending its existing Waybill access procedures. See below. The
procedures, which are set forth at 49 CFR 1244.9, describe five
categories of users that can request access to Waybill data and the
procedures for each category of user to do so. While there is a
category of user for ``transportation practitioners, consulting firms,
and law firms'' to obtain access to Waybill data, they may only use
this data ``in preparing verified statements to be submitted in formal
proceedings before the STB.'' 49 CFR 1244.9(b)(4). The other available
procedures similarly do not permit shippers to obtain such data for use
in an arbitration.\47\ Accordingly, the Board will propose modifying
the language of Sec. 1244.9(b)(4) to include parties to a small rate
case arbitration as a category of user that may request and use such
data in arbitrations under the proposed program.
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\47\ Under 49 CFR 1244.9(b)(1), a railroad may obtain access to
Waybill data for any traffic in which the carrier participated.
Under 49 CFR 1244.9(c), ``other users'' may request access to the
Waybill Sample, but that process requires the filing of a written
request, publication of notice of the request in the Federal
Register, an opportunity for the carriers' whose data is being
sought to file protests, a determination by the OE Director, and a
right of parties to appeal the Director's decision. Even if such a
request were processed on an expedited basis, it could take some
months to reach a final resolution.
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3. Other Issues Related to Waybill Data Disclosure
Petitioners propose that the Joint Notice be submitted to the
Director of OE to facilitate timely preparation of the Waybill data.
(Pet. 13; id., App. A at 6.) The Board will propose that the Joint
Notice be submitted to the Director, along with a letter containing the
five-digit STCC information necessary for OE to produce the
confidential Waybill Sample data subject to automatic disclosure, and
that OE would provide this data within seven days.
Petitioners also propose that the parties to the arbitration would
enter into a Confidentiality Agreement covering the arbitration
generally, including access to the Waybill Sample. (Pet., App. A at 8.)
\48\ However, the release of confidential data from the Waybill Sample
requires an agreement with the Board. See 49 CFR 1244.9(b)(4)(v).
Accordingly, the Board will propose that, as in formal proceedings and
other waybill releases, OE provide to the parties a confidentiality
agreement pursuant to 49 CFR 1244.9(b)(4)(v) that must be executed
prior to release of any confidential Waybill data. Additionally, the
Board will propose a requirement that the arbitrators sign their own
agreement with the Board that would allow them to review confidential
Waybill data that may be provided by the parties.
---------------------------------------------------------------------------
\48\ The proposed Confidentiality Agreement provided by
Petitioners appears to be modeled on a frequently used protective
order issued by the Board in adjudication and rulemaking proceedings
in which information is filed under seal. (See Pet., App. B.)
---------------------------------------------------------------------------
D. Admissible Evidence
As discussed below (see infra Section VII.B), the Board will
propose that evidence pertaining to product and geographic competition
would be inadmissible, consistent with Board precedent regarding market
dominance determinations. Mkt. Dominance Determinations--Prod. &
Geographic Competition, 3 S.T.B. 937, 948 (1998) remanded sub nom.
Ass'n of Am. R.Rs. v. STB, 237 F.3d 676 (D.C. Cir. 2001), pet. for
review denied sub nom. Ass'n of Am. R.Rs. v. STB, 306 F.3d 1108 (D.C.
Cir. 2002). As noted below, (see infra Section XII), the Board will
also propose that arbitration decisions be deemed non-precedential, and
likewise inadmissible.\49\ The Board will not, however, propose that
evidence of revenue adequacy be inadmissible. As explained in detail
below, (see infra Section VIII.A.2), the Board finds that section 11708
requires that shippers be allowed to submit, and arbitrators to
consider, certain revenue adequacy evidence.
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\49\ Petitioners include proposed regulatory language stating
that non-precedential decisions include ``non-precedential decisions
of the Board or of prior arbitrations.'' (Pet., App. A at 8
(proposed Sec. 1108.27(e)(2)(ii)).) It is unclear to what ``non-
precedential decisions of the Board'' is referring and the Board's
proposal does not include this language.
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VII. Market Dominance
A. Determination by the Arbitration Panel
The Petition proposes that, under the proposed program, the
arbitration panel would determine whether the railroad has market
dominance. Petitioners contend that a ``significant drawback'' of the
existing arbitration requirements is that they require the Board to
determine market dominance prior to the arbitrator considering rate
reasonableness. (See Pet. 21-22.) They argue that, with respect to
small rate cases, ``having to put rate reasonableness on hold while the
Board decides market dominance could cause a significant delay and
creates a disincentive for shippers to arbitrate.'' (Id.)
Section 11708 provides that, ``with respect to rate disputes, [the
Board] may make the voluntary and binding arbitration process available
only to the relevant parties if the rail carrier has market dominance
(as determined under section 10707).'' 49 U.S.C. 11708(c)(1)(C).
Section 10707 provides that where a shipper challenges a rail
transportation rate subject to the Board's jurisdiction as being
unreasonably high, ``the Board shall determine whether the rail carrier
proposing the rate has market dominance over the transportation to
which the rate applies.'' 49 U.S.C. 10707(b).
Petitioners argue that the Board is not prohibited from permitting
the arbitration panel to determine market dominance in the small rate
case arbitration program. Petitioners argue that while section 11708
instructs the Board to make arbitration available only where the
railroad has market dominance, it does not prohibit the Board from
delegating the market dominance decision to the arbitration panel,
provided the parties have voluntarily consented to that arrangement.
(Pet. 22.) Petitioners also contend that, even if section 11708 forbids
such delegation, the Board may use its exemption authority under 49
U.S.C. 10502(a) to exempt small rate case arbitrations from that
provision, on the ground that any such requirement is not necessary to
carry out the rail transportation policy or protect shippers from an
abuse of market power. (Id.) \50\
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\50\ Petitioners also contend that the Board is not constrained
by section 11708 and may propose arbitration procedures that deviate
from that statute under its general rulemaking authority at 49
U.S.C. 1321(a), (Pet. 22), but as noted earlier, the Board is
proposing a small rate case arbitration program in this decision
pursuant to the requirements of section 11708.
---------------------------------------------------------------------------
Olin objects to this aspect of the Petition, arguing, among other
things, that the Board should not ``create a whole new alternative
arbitration rate relief program in conflict with, but separate from the
rate arbitration rules established by the Board under Sec. 11708.''
(Olin Reply 10.) It notes that this is another reason why the proposed
program should not supplant FORR, which avoids this problem by having
the Board determine market dominance. (Id.)
The Board is skeptical of Petitioners' argument that, to the extent
49 U.S.C. 11708 prohibits the arbitration panel from determining market
dominance in a rate arbitration, the Board could simply exempt parties
from that provision pursuant to 49 U.S.C. 10502(a). Section 10502(a)
authorizes the Board to exempt ``person[s], class[es] of persons, or a
transaction or service'' from the provisions of U.S. Code title 49,
subtitle IV, part A, under certain circumstances. From a practical
[[Page 67602]]
standpoint, Petitioners appear to suggest that the Board may eliminate
altogether a jurisdictional requirement for rate cases that Congress
carried over to the arbitration context. Regardless, the Board need not
reach that argument, as it now concludes that section 11708 does not
prohibit an arbitration panel from determining market dominance.
1. Arbitrators Can Determine Market Dominance.
As noted above, under 49 U.S.C. 11708(c)(1)(C), ``with respect to
rate disputes, [the Board] may make the voluntary and binding
arbitration process available only to the relevant parties if the rail
carrier has market dominance (as determined under section 10707).'' In
Revisions Final Rule, the Board adopted a final rule allowing parties
to obtain the requisite market dominance determination by either
requesting a ruling from the Board solely on the issue of market
dominance or conceding market dominance and thereby ``forgoing the need
for a determination by the Board.'' Revisions Final Rule, EP 730, slip
op. at 6-7; see also Revisions to Arbitration Procs., 81 FR 30229 (May
16, 2016), EP 730, slip op. at 2-3 (STB served May 12, 2016). While the
Board's decisions in that proceeding did not undertake a detailed
analysis of whether section 11708 permitted an arbitrator or
arbitration panel to determine market dominance, the Board did state
that ``the Board must determine if the rail carrier has market
dominance before making the arbitration process available.'' Revisions
to Arbitration Procs., EP 730, slip op. at 6; see also id. at 3 (noting
that, ``as required by the statute,'' arbitration may be ``available
only after [the Board] determines that a rail carrier has market
dominance'').
Here, the Board revisits this determination and now concludes that
allowing arbitrators to determine market dominance is consistent with
and permitted by the statutory language.\51\ Although section
11708(c)(1)(c) requires that market dominance be determined under
section 10707, and although section 10707 states that ``the Board shall
determine whether the rail carrier . . . has market dominance over the
transportation to which the rate applies,'' the overarching purpose of
section 10707 is to define market dominance and set forth
methodological requirements for its determination--e.g., a finding of
R/VC greater than 180%, directions for determining variable costs, and
the prohibition against certain presumptions. It seems likely that
section 10707 refers to ``the Board'' determining market dominance
merely because the section otherwise governs determinations made in
rate reasonableness proceedings before the Board. See 49 U.S.C.
10707(c) (``When the Board finds in any proceeding that a rail carrier
proposing or defending a rate for transportation has market dominance
over the transportation to which the rate applies, it may then
determine that rate to be unreasonable if it exceeds a reasonable
maximum for that transportation.'') (emphasis added)). It is
reasonable, therefore, to conclude that the reference in section
11708(c)(1)(C)--a provision pertaining to rate reasonableness
proceedings before an arbitrator, not the Board--to section 10707 is to
the definitional and substantive, methodological requirements set forth
in that section, not to any requirement that the Board itself determine
the presence of market dominance.\52\
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\51\ It is an axiom of administrative law that an agency's
adoption of a particular statutory interpretation at one point in
time does not preclude later different interpretations. See, e.g.,
Hinson v. NTSB, 57 F.3d 1144, 1149-50 (D.C. Cir. 1995). If an agency
changes course, it must provide ``a reasoned analysis indicating
that prior policies and standards are being deliberately changed and
not casually ignored,'' Grace Petroleum Corp. v. FERC, 815 F.2d 589,
591 (10th Cir. 1987) (citing Greater Bos. Television Corp. v. FCC,
444 F.2d 841, 852 (D.C. Cir. 1970)), and its new interpretation must
be permissible under the governing statute, see Chevron U.S.A., Inc.
v. Nat. Res. Def. Council, 467 U.S. 837, 865 (1984).
\52\ In Revisions Final Rule, EP 730, slip op. at 2-3, the Board
allowed parties to concede market dominance in rate disputes
arbitrated under section 11708, acknowledging that the arbitration
process is voluntary and that market dominance determinations may
significantly delay the process. But, if the reference within
section 11708(c)(1)(C) to section 10707 requires that ``the Board''
determine market dominance as a prerequisite to arbitrating a ``rate
dispute,'' that would seem to preclude any resolution of the market
dominance issue other than by ``the Board,'' including by
stipulation. It could be argued that it would also constrain parties
from ``independently seeking or utilizing private arbitration
services'' to resolve a market dominance dispute, which would
conflict with section 11708(b)(3). Accordingly, the better reading
of the statute is that it permits parties to (1) agree to concede
market dominance, (2) agree to its determination by an arbitrator
within an arbitration (be it one under the auspices of section 11708
or otherwise), or (3) have that issue first be determined by the
Board.
---------------------------------------------------------------------------
The Board's modified interpretation that section 11708(c)(1)(C)
permits the arbitration panel to determine market dominance in regard
to arbitrated rate disputes also comports with the statute's objective
of providing a voluntary arbitration process and advances Congress's
stated goal when passing section 11708 of ``increas[ing] the efficiency
of dispute resolution'' by ``expand[ing] existing work at the STB to
encourage and provide arbitration for dispute resolution.'' S. Rep. No.
114-52, at 7, 13 (2015). Nothing within section 11708's legislative
history otherwise indicates that Congress expected that the Board
itself would resolve market dominance before allowing the arbitration
of rate disputes. The Board also recognizes, as it has in the past,
that the arbitrators' inability to rule on market dominance is likely
one hindrance to parties' willingness to use the arbitration process.
See Revisions Final Rule, EP 730, slip op. at 6 (acknowledging that
market dominance determinations being made by the Board ``may
significantly delay the arbitration process''). These circumstances,
and section 11708's objective of encouraging the use of arbitration to
resolve disputes, support interpreting section 11708 to permit the
arbitration panel to determine market dominance in rate disputes. See,
e.g., Rux v. Republic of Sudan, 461 F.3d 461, 470 (4th Cir. 2006)
(expressing the need to ``interpret statutory language in a manner that
effectuates congressional intent''); Teva Pharms., USA, Inc. v. FDA,
182 F.3d 1003 (D.C. Cir. 1999) (same).\53\
---------------------------------------------------------------------------
\53\ In addition, parties have the right to appeal arbitration
decisions to the Board under 49 U.S.C. 11708(f), which would include
the arbitration panel's market dominance finding.
---------------------------------------------------------------------------
2. Market Dominance Does Not Have To Be Determined Before the
Arbitration Process Begins.
To the extent the Board's prior rulemaking can be read to suggest
that section 10708(c)(1)(C) requires that any aspect of the
``arbitration process'' be made available to resolve a ``rate dispute''
only after it has been determined that a carrier has market dominance--
either by the Board, an arbitrator, or by stipulation--it bears
emphasizing that arbitration under the rule proposed here would
function no differently than the Board's decision-making in a formal
rate case. If the arbitrators conclude that there is no market
dominance, that would end the arbitration; like the Board, the
arbitrators would not proceed to rule on the merits of rate
reasonableness. The Board concludes that section 11708(c)(1)(C) does
not require market dominance and rate reasonableness issues to be
litigated or arbitrated sequentially, only that a finding of market
dominance must be made before the arbitration panel may determine rate
reasonableness. A contrary reading of the statute would suffer from the
same drawbacks discussed above and could contravene the stated goal in
adopting the arbitration provision in the first place. See S. Rep. No.
114-52 at 7 (stating that the STB Reauthorization
[[Page 67603]]
Act would expand existing work at the STB to encourage and provide
arbitration for dispute resolution). By encouraging parties to resolve
rate disputes through arbitration in lieu of adjudication but still
requiring those parties to adjudicate market dominance before the Board
or in a separate arbitration as a mandatory prerequisite, it could
undermine the effectiveness of arbitration as an alternative to formal
litigation.
Given its modified interpretation of section 11708, the Board will
propose that market dominance determinations be made by the arbitration
panel under the proposed program.\54\ As with the procedures under the
Board's current arbitration program, see Revisions Final Rule, EP 730,
slip op. at 6-7, the carrier may concede market dominance, or the
parties may jointly request that the Board determine market dominance.
See proposed Sec. 1108.29(b)(1)(vi).
---------------------------------------------------------------------------
\54\ The Board will determine whether an amendment to the market
dominance determination in the existing arbitration procedures under
49 CFR part 1108 should be made after the conclusion of this
rulemaking.
---------------------------------------------------------------------------
B. Other Market Dominance Issues
Petitioners propose that the arbitration panel be required to
follow the streamlined market dominance approach that the Board adopted
in EP 756. (See Pet. 13); see also Mkt. Dominance Streamlined Approach,
EP 756 (STB served Aug. 3, 2020).\55\ However, in their supplemental
filing, they indicate that they no longer object to allowing shippers
to use the proposed arbitration process if they proceed under a non-
streamlined analysis. (Pet'rs Suppl. 5-6.) Petitioners also propose
that when deciding market dominance, the arbitration panel not consider
evidence of product and geographic competition, nor apply the limit
price test as described in M&G Polymers USA, LLC v. CSX Transp., Inc.,
NOR 42123, slip op. at 11-18 (STB served Sept. 27, 2012). (See id. at
13-14, 27.) They contend that the limit price test involves detailed
policy and legal challenges not appropriate for litigation in a
streamlined and expedited arbitration with limited appellate rights.
(Id. at 27.)
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\55\ Because Petitioners submitted the Petition prior to the
Board's adoption of the final rule in EP 756, they stated they
reserved the right to revise this proposal in the event the Board
adopted a final rule in EP 756 that deviated materially from the
Board's original, proposed rule. (See Pet. 13 n.47.)
---------------------------------------------------------------------------
The Board will propose that the complainant in a small rate case
arbitration under these procedures may attempt to establish market
dominance using either the streamlined or non-streamlined approach.\56\
Both the shipper interests and Petitioners appear to agree that there
should be no restriction on which market dominance approach a shipper
decides to utilize under the proposed program. The Board will also
propose prohibiting arbitrators from considering evidence on product
and geographic competition and the limit price test as part of the
market dominance analysis. The Board does not consider product or
geographic competition under either the streamlined or non-streamlined
market dominance approach. See Mkt. Dominance Streamlined Approach, EP
756, slip op. at 31-32 (STB served Aug. 3, 2020); Product & Geographic
Competition, 5 S.T.B. 492, 499 (2001), corrected, EP 627, (STB served
Apr. 6, 2001), aff'd sub nom. Ass'n of Am. R.Rs. v. STB, 306 F.3d 1108
(D.C. Cir. 2002). Olin states that the limit price test is established
precedent, and notes that the FORR proposal does not prohibit its use.
(Olin Reply 10-11.) However, the limit price test has been the subject
of controversy in rate cases and thus would only add time and
complexity to small rate case arbitrations. Accordingly, the Board will
propose that the arbitration panel cannot consider the Limit Price Test
as part of its market dominance determination. See proposed Sec.
1108.29(b)(1)(v).
---------------------------------------------------------------------------
\56\ Because both the streamlined market dominance approach and
non-streamlined approach comply with the requirements of 49 U.S.C.
10707, use of either approach is permissible under section 11708.
The Joint Shippers also argue if the Board were to adopt the
``[aacute] la carte'' approach to determining market dominance they
proposed in Mkt. Dominance Streamlined Approach, Docket No. EP 756,
it would mitigate the time and expense of arbitrating market
dominance. (Joint Shippers Suppl. 13.) The [aacute] la carte
approach is the subject of the Joint Shippers' petition for
reconsideration in that proceeding and will therefore not be
addressed here.
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VIII. Arbitration Decision
A. Rate Reasonableness Standard of Review
Petitioners propose that, when determining rate reasonableness, the
arbitration panel follow the standards prescribed in 49 U.S.C.
11708(c)(3) and (d)(1). However, Petitioners also propose prohibiting
the arbitration panel from ``considering any type of system-wide
adequacy constraint, including the revenue adequacy constraint
described in Coal Rate Guidelines, 1 I.C.C.2d 520, 535 (1985),'' and
relatedly that ``any evidence related to the revenue adequacy of the
defendant carrier'' be inadmissible. (Pet. 14-15; id., App. A at 8.)
Shippers generally support use of the standards proposed by
Petitioners, though some urge the Board to include more specificity
regarding the ability of arbitrators to apply market-based factors.
Shippers strongly oppose any restrictions on revenue adequacy
considerations in arbitrations under the proposed small rate case
program.
1. General Standard
Under the statutory provisions of section 11708(c)(3) and (d)(1),
when deciding whether a rate is reasonable, an arbitration panel must:
(i) Consider the Board's methodologies for setting maximum lawful
rates, giving due consideration to the need for differential pricing to
permit a rail carrier to collect adequate revenues; and (ii) ensure
that its decision is consistent with sound principles of rail
regulation economics.
NGFA suggests that the Board add language stating that arbitrators
can consider ``flexible market-based standards,'' including ones that
are incorporated in the NGFA's own private agreement to arbitrate with
BNSF. (NGFA Reply 12.) NGFA states that such additional flexible
market-based factors would include: (1) Rate levels on comparative
traffic, (2) market factors for similar movements of the same
commodity, and (3) overall costs of providing the rail service. (Id.)
The Joint Shippers state that the Board should adopt the market-based
factors proposed by NGFA, as providing arbitrators with such a list of
would help arbitrators identify factors with a sound economic basis,
which could increase the quality of panel decisions. (Joint Shippers
Suppl. 13-14.) In their supplemental filing, Petitioners state that
they have no objection to the Board explicitly permitting the
arbitration panel to consider these market-based factors. (Pet'rs
Suppl. 4.)
The Board will propose the same general standards for rate
reasonableness as suggested in the Petition, which closely follows the
language of section 11708(c)(3) and (d)(1). The Board agrees with
Petitioners that while section 11708(c)(3) requires that the
arbitration panel ``consider'' the Board's existing methodologies, the
statute does not require that the arbitration panel follow any
particular methodology. As Petitioners note, this interpretation
permits the arbitration panel flexibility by not requiring it ``to
conform precisely to existing methodologies, but rather permits the
panel to base its decision on alternative approaches so long as they
are consistent with sound railroad economics.'' (Pet. 25.) This
interpretation also is broadly similar to one of the key features of
FORR, which would also allow parties flexibility to
[[Page 67604]]
choose how to present and support their offers, including the
methodology used. See FORR SNPRM, EP 755, slip op. at 26-27 (STB served
Nov. 15, 2021). Similar to the FORR proposal, here parties in
arbitration would also be able to ``use their preferred methodologies,
including revised versions of the Board's existing rate review
methodologies or new methodologies altogether.'' Id. at 11. Moreover,
because arbitration decisions broadly are to be ``consistent with sound
principles of rail regulation economics,'' and are not to ``directly
contravene[ ] statutory authority,'' the Board expects the arbitration
panel to be informed by the rail transportation policy at 49 U.S.C.
10101, to consider the Long-Cannon factors at 49 U.S.C. 10701(d)(2),
and to use appropriate economic principles, as would the Board in a
decision in a FORR proceeding. Compare 49 U.S.C. 11708(d)(1), (h) with
FORR SNPRM, EP 755, slip op. at 27-28 (STB served Nov. 15, 2021). Also
as was the stated intention in FORR, the arbitration program's use of
principle-based, non-prescriptive review criteria should facilitate
methodological innovation--albeit without the precedential effect
anticipated in FORR--with overall complexity constrained by an
abbreviated procedural schedule and a streamlined discovery process.
Given the methodological flexibility described above, and because
all parties appear to agree to include NGFA's proposed market-based
factors in the text of the regulation, the Board will include them as
part of its proposal. See proposed Sec. 1108.29(b)(2). Furthermore,
parties arbitrating pursuant to 49 U.S.C. 11708 are free to present new
or modified rate reasonableness methodologies that consider additional
market-based factors.
2. Revenue Adequacy
Petitioners also propose prohibiting the arbitration panel from
considering any type of system-wide revenue adequacy constraint,
including the revenue adequacy constraint described in Coal Rate
Guidelines. (Pet. 14-15; id., App. A at 8.) They also propose that any
evidence related to the revenue adequacy of the carrier be deemed
inadmissible. (Id. at 15; id., App. A at 8.) Petitioners contend that
over the past decade, they have raised ``serious legal, factual, and
policy flaws with any constraint premised on the system-wide financial
health of a carrier,'' which they characterize as an ``antiquated,
utility-style concept of rate regulation that has long since been
abandoned in other industries.'' (Id. at 14-15.) They state that they
will not consent to a such a constraint applying in a small rate case
arbitration, especially given the short deadlines and limited appeal
rights. (Id. at 15.)
Several shippers object to prohibiting the arbitration panel from
considering the revenue adequacy constraint in reaching an arbitration
decision. The Joint Shippers note that in Hearing on Revenue Adequacy,
Docket No. EP 761, and Final Offer Rate Review, Docket No. EP 755, the
ACC has submitted the prototype for a rate dispute methodology that
implements the revenue adequacy constraint and that the carriers'
proposed revenue adequacy constraint prohibition, combined with the
proposed FORR exemption for participating carriers, would foreclose
small rate case shippers from using this proposed methodology. (Joint
Shipper Reply 5.) In their supplemental filing, the Joint Shippers
argue that the revenue-adequacy constraint is especially relevant today
because many railroads are reaching long-term revenue adequacy. (Joint
Shipper Suppl. 4.) They further argue that Petitioners' assertion that
the revenue adequacy constraint is highly contested and that the
limited appellate standards governing arbitration decisions does not
justify the prohibition. The Joint Shippers also argue that such a
prohibition conflicts with Congress's directive in 49 U.S.C.
11708(c)(3) that arbitrators consider revenue adequacy, specifically,
that arbitrators ``giv[e] due consideration to the need for
differential pricing to permit a rail carrier to collect adequate
revenues.'' (Id. at 7.)
Olin agrees with the Joint Shippers that the program as proposed by
Petitioners would effectively insulate railroads from the revenue
adequacy constraint, which it argues the Board has recognized as ``an
essential first constraint in limiting the extent to which railroads
can price their services,'' and which is established precedent. (Olin
Reply 7-8; see also Joint Shippers Suppl. 4 (noting that the revenue
adequacy constraint has long been established as a proper rate
reasonableness standard by the Board).) Olin further notes that, by
contrast, there is no such limit on revenue adequacy evidence under the
proposed FORR process. (Olin Reply 11-12; see also U.S. Wheat Suppl.
7.) USDA argues that, if Petitioners insist on limiting arbitrators
from considering evidence on revenue adequacy, then shippers should
have the option to use FORR or arbitration. (USDA Reply 2.) \57\
---------------------------------------------------------------------------
\57\ NGFA states that it takes no position on the proposed
exclusion of revenue adequacy considerations though, as discussed
above, it argues that if the Board adopts the Rate Increase
Constraint, carriers that participate in the proposed small rate
case arbitration program should not be permitted to withdraw from
the program on that basis alone. (NGFA Reply 10-11, 13.) NGFA
further argues that, if adopted, the Rate Increase Constraint should
be available for consideration in arbitrations under the proposed
small rate case program. (Id. at 11.)
---------------------------------------------------------------------------
In their supplemental filing, Petitioners reiterate their position
that controversial issues like revenue adequacy should not be litigated
for the first time in small case arbitrations with limited appellate
rights. (Pet'rs Suppl. 2.) They emphasize that use of ``any regulatory
adequacy constraint'' in rate reasonableness determinations, including
ACC's proposed benchmark method, represents a ``grave regulatory
misstep.'' (Id. at 15.) They further state that, even if revenue
adequacy were a lawful method of constraining rates (which they claim
it is not), the application of the concept is currently undefined, and
allowing arbitrators to define it ``risks departure from sound
principles of rail transportation economics.'' (Id.) As such, they
reiterate that they will not agree to arbitrate rate disputes where
shippers are permitted to use a revenue adequacy constraint. (Id.)
The Board finds that Petitioners have not sufficiently justified
their proposed methodological and evidentiary restrictions pertaining
to revenue adequacy, and they will not be included as part of the
Board's proposal. Regarding the evidentiary restriction, the regulatory
text proposed by Petitioners prohibiting ``any evidence relat[ing]'' to
``the revenue adequacy of the defendant carrier,'' (see Pet., App. A at
8 (proposed Sec. 1108.27(e)(2)(iii)), conflicts with section
11708(c)(3)'s requirement that arbitrators give ``due consideration to
the need for differential pricing to permit a rail carrier to collect
adequate revenues (as determined under section 10704(a)(2)).'' It is
unclear how the arbitrators could comply with their statutory
obligations if absolutely prohibited from considering any evidence
concerning revenue adequacy.
Petitioners' proposal that arbitrators be prohibited ``from
considering any type of system-wide revenue adequacy-based constraint''
raises similar concerns.\58\ For example, the Three-
[[Page 67605]]
Benchmark methodology uses the Revenue Shortfall Allocation Method
(RSAM) benchmark to ``account[ ] for a railroad's need to earn adequate
revenues, as required by 49 U.S.C. 10704(a)(2).'' Rate Guidelines--Non-
Coal Procs., 1 S.T.B. 1004, 1027 (1996). Indeed, where the revenue a
carrier collects from its captive traffic (i.e., the R/
VC<INF>>180</INF> benchmark) exceeds RSAM, use of the Three-Benchmark
methodology may operate to constrain a carrier's rates based on its
revenue requirements. See id. at 1043 (``The greater the difference
between the two benchmarks [where RSAM is lower than R/
VC<INF>>180</INF> benchmark], the greater the downward adjustment to
the carrier's average rates on its >180 traffic that would still permit
it to meet the RSAM revenue need standard.'') Under the regulatory
language proposed by Petitioners, the use of RSAM--and hence the entire
Three-Benchmark methodology--could arguably be considered outside the
bounds of the arbitrators' consideration. Yet Petitioners appear to
have no objection to arbitrators relying on the Three-Benchmark
methodology for determining the reasonableness of the rate. By
contrast, Petitioners object to the arbitrators considering ACC's
proposed benchmark method despite it bearing certain similarities to
the Three-Benchmark methodology.\59\
---------------------------------------------------------------------------
\58\ Petitioners phrase this restriction more narrowly than
their proposed evidentiary restriction, which would more broadly
prohibit ``any evidence relat[ing] to the revenue adequacy of the
defendant carrier.'' (Pet., App. A at 8 (proposed Sec.
1108.27(e)(2)(i).) However, when the two provisions are considered
together, Petitioners appear to intend the restriction on ``any
system-wide revenue adequacy constraint'' as a broad exclusion of
any methodology involving revenue adequacy, as evidenced by their
objection to the use of ACC's proposed benchmark method.
\59\ As ACC has described it, the benchmark method relies upon a
model to predict competitive benchmark rates for captive rail
movements using certain competitive rail movements, which are then--
through application of a ``multiplier''--adjusted to ``determine the
appropriate degree of differential pricing consistent with the
Board's rail revenue adequacy standard.'' Joint Shippers Comment 20,
Nov. 12, 2019, Final Offer Rate Rev., EP 755.
---------------------------------------------------------------------------
Additionally, it is possible that the market-based factors proposed
by NGFA--which Petitioners agree arbitrators may consider--could
require the consideration of the carrier's capital requirements, which
in turn would also run afoul of Petitioners' proposed revenue adequacy
prohibitions. Generally speaking, it is difficult to reconcile the
methodological flexibility afforded to arbitrators by section 11708 (as
attested to by Petitioners, see supra Section VIII.A.1) and section
11708's requirement that arbitrators consider the need for differential
pricing to attain revenue adequacy with the seemingly expansive
limitation on the use of ``any system-wide revenue adequacy
constraint'' as proposed by Petitioners.
Accordingly, the Board's proposed regulations do not include a
general prohibition on revenue adequacy evidence or methodologies. In
addition, the Board will propose adding the phrase ``as determined
under section 10704(a)(2)'' to Petitioners' suggested provision
mandating that the arbitration panel consider the need for differential
pricing to permit a rail carrier to collect adequate revenues.\60\
Petitioners' provision is based on language taken directly from section
11708 but omits this phrase. Compare Pet., App. A at 9 with 49 U.S.C.
11708(c)(3). The reference to section 10704(a)(2) is specifically
stated in the statute and therefore should not be excluded from the
regulatory text.
---------------------------------------------------------------------------
\60\ See proposed Sec. 1108.29(b)(2).
---------------------------------------------------------------------------
B. Arbitration Decision Timeline
Petitioners propose that the arbitration panel issue its decision
within 120 days, but again, propose varying starting points; they
propose in the body of the Petition that this period would start on the
date that the Joint Notice is filed, but propose in the appendix that
it would start from the commencement of arbitration (i.e., two business
days after the arbitration panel is appointed).
The Board will propose that the arbitration panel issue its
decision no later than 30 days after close of the evidentiary phase,
rather than within 120 days from either the submission of the Joint
Notice or commencement of arbitration. See proposed Sec.
1108.27(c)(3). This accounts for the potential extension or shortening
of the evidentiary phase deadline and comports with section
11708(e)(3), which requires that the arbitration panel shall issue a
decision not later than 30 days after the date on which the evidentiary
record is closed.
IX. Relief
Petitioners propose that any relief awarded in a single arbitration
be capped at $4 million (indexed for inflation annually using the
Consumer Price Index and a 2020 base year) over two years. (Pet. 11.)
This monetary cap would apply to prospective relief, retroactive
relief, or a combination of the two. (Id.) They further propose that
any prospective relief in the form of rate prescriptions be limited to
one year. (Id.) Petitioners state that a $4 million relief cap would
capture the majority of potential rate litigants and that relief under
the proposed program would be higher, on an annualized basis, than what
was originally proposed in Simplified Standards, Docket No. EP 646
(Sub-No. 1). (Pet. 27 n.56.)
NGFA states that it agrees with the $4 million/two-year relief cap,
but it stipulates that the cap should be reconsidered if the Board
adopts a higher cap in FORR. (NGFA Reply 8-9.) Olin argues that the
proposed one-year limit on rate prescriptions cuts in half the two-year
limit on rate prescriptions proposed under FORR. (Olin Reply 11.) The
Joint Shippers note this in their supplemental filing as well, pointing
out that Petitioners fail to explain why prescriptive relief should be
limited to one year. (Joint Shippers Suppl. 9.) While the Joint
Shippers further note that complainants are entitled to four years of
relief in any combination of reparations and prescription in a Three-
Benchmark proceeding, they state that they do not oppose a general two-
year relief period. (Id.)
A. Prescription Amount and Length
The Board will propose a relief cap of $4 million and a relief
period of two years. An award of $4 million, covering a period of two
years (applied to a combination of retroactive and prospective relief),
should be of sufficient value to incentivize shippers to use the
proposed program while also addressing the carriers' concern that the
proposed program remains limited to only smaller rate disputes. The $4
million cap also parallels the relief that is proposed in the FORR
process.\61\
---------------------------------------------------------------------------
\61\ U.S. Wheat argues that the arbitration proposal appears to
be a strategic move to stop any increase in the recovery cap in
FORR. (U.S. Wheat Suppl. 7.) If the Board proceeds with FORR and
considers raising the relief cap there, it can also address whether
to make a corresponding change to the relief cap for the proposed
small rate case arbitration program at that time.
---------------------------------------------------------------------------
The Board will not, however, propose a one-year cap on
prescriptions. Here, Petitioners propose that the total relief period--
which could include either reparations for past movements or a
prescription for future movements, or both--should be two years.
However, they also propose (without explanation) that any prescription
be limited to a single year. The Joint Shippers correctly point out
that this could unfairly limit a shipper's relief.\62\ Thus, under the
Board's proposal, the length of the prescription could be as long as
the total period for relief, which here would be two years. See
proposed Sec. 1108.28(b). As the Joint Shippers note, this would be
consistent with the Board's treatment of relief periods in other
contexts. See Rate Regulation Reforms, 78 FR 44459
[[Page 67606]]
(July 24, 2013), EP 715, slip op. at 22-25.
---------------------------------------------------------------------------
\62\ For example, if a shipper initiates arbitration immediately
after a rate takes effect, the arbitration process lasts six months
(consistent with the timelines proposed here), and the shipper is
successful, it would receive six months of reparations for the
period in which the arbitration was conducted. However, if there was
a one-year prescription cap, the shipper would be artificially
limited to 18 months of total relief even if it had successfully
demonstrated that two years of relief was warranted.
---------------------------------------------------------------------------
B. Preclusive Effect of Arbitration Decision
Petitioners' proposed regulations would preclude shippers from
bringing a rate complaint or other proceeding for the same traffic for
the later of (a) two years from the filing of the joint notice to
arbitrate or (b) expiration of any rate prescription imposed. (Pet.,
App. A at 9.) The Board notes that Petitioners' proposal does not seem
to account for a situation in which the carrier increases the rate at
issue after the arbitration decision. Specifically, if a shipper is
unsuccessful in arbitration, Petitioners' proposal would preclude the
shipper from challenging the rate for two years, even if the carrier
were to raise the rate immediately after the panel rendered its
decision. Under Board and court precedent, shippers that have lost a
formal rate case may not challenge the same rate for the same traffic,
but they may challenge a new rate for the same traffic. See Mkt.
Dominance Streamlined Approach, EP 756, slip op. at 44 (citing
Burlington N. & Santa Fe Ry. v. STB, 403 F.3d 771, 778 (D.C. Cir.
2005); Intermountain Power Agency v. Union Pac. R.R., NOR 42127, slip
op. 4 (STB served Nov. 2, 2012)).
A similar situation would occur if the shipper is awarded a
prescription shorter than two years. For example, if a shipper is
awarded a six-month prescription, under Petitioners' proposal, the
shipper would be barred from challenging the rate for the 18 months
following expiration of the prescription even if the railroad increases
the rate during those 18 months. This is again inconsistent with how
the Board treats the effect of a rate decision in other contexts. With
regard to Three-Benchmark proceedings, the Board has held that ``[i]f .
. . a carrier establishes a new common carrier rate once the rate
prescription expires, and the new rate exceeds the inflation-adjusted
challenged rate, the shipper may bring a new complaint against the
newly established common carrier rate.'' Rate Regulation Reforms, EP
715, slip op. at 12.
Accordingly, the Board will propose language that makes clear that
the preclusive effect of an arbitration decision is terminated if the
carrier increases the rate. See proposed Sec. 1108.29(d)(3).
Specifically, the proposed language would allow a shipper that has
either lost an arbitration or prevailed in arbitration but exhausted
its prescription to bring a new arbitration for the same traffic if the
carrier increases the rate. This modification would ensure fairness and
comport with precedent in other contexts, as noted above.
C. Agreements To Modify Relief Cap
The Board will propose permitting carriers and shippers to agree in
an individual case to arbitrate under the proposed procedures for a
lesser or higher amount and/or a shorter or longer relief period, not
to exceed the $25 million cap or five-year period set forth in 49
U.S.C. 11708. See proposed Sec. 1108.28(c). As noted above, the Board
will propose that any such agreement be noted in the confidential
summary that is filed at the conclusion of the arbitration. See
proposed Sec. 1108.29(e)(1).
X. Appeals and Enforcement
Petitioners propose that the Board include appellate procedures and
standards. An appeal would be initiated by the appellant filing a
notice, which would allow the Board to formally docket the proceeding.
(Pet., App. A at 10.) Petitioners include a proposed notice of appeal
form. (Pet., App. C.) This notice would provide only basic information
about the appeal, including the date of the arbitration decision and
the name of the appealing party; the opposing side would not be named.
(Id.) The subsequent appellate procedures proposed by Petitioners would
closely follow those of 49 CFR 1108.11. (Pet., App. A at 10.)
Petitioners further propose that the Board's standard of review for
arbitration decisions would be limited to the same criteria as those
governing the existing arbitration process in 49 CFR 1108.11(b). (Pet.
15.) \63\ Petitioners propose that the Board's decision would be
public, but that the Board should ``maintain the confidentiality of the
arbitration decision to the maximum extent possible'' by redacting
certain information. (Pet., App. A at 11 (proposed Sec. 1108.31(d).)
---------------------------------------------------------------------------
\63\ Specifically, the Board would only review whether: (a) The
decision is consistent with sound principles of rail regulation
economics; (b) a clear abuse of arbitral authority or discretion
occurred; (c) the decision directly contravenes statutory authority;
or (d) the arbitral award limit was violated. 49 U.S.C. 11708(h).
---------------------------------------------------------------------------
Lastly, Petitioners propose that the Board's decision on appeal
would be judicially reviewable under the Hobbs Act, 28 U.S.C. 2321 and
2342; stays of arbitration decisions would not be automatic, though
could be sought pursuant to 49 CFR 1115.3(f); and enforcement of an
arbitration decision would have to be sought in a court of appropriate
jurisdiction under the Federal Arbitration Act, 9 U.S.C. 9-13. (Pet.
15.)
The Board will propose appellate and enforcement procedures similar
to those proposed by Petitioners. Olin argues that the ability of
parties to appeal to either the Board or a court serves as a
``roadblock[ ] to relief with an extra layer of appeals than that
provided under FORR.'' (Olin Reply 11; see also U.S. Wheat Suppl. 6
(arguing that a railroad will probably always appeal if they lose a
case).) However, section 11708(h) sets forth a party's right to appeal
an arbitration decision to the Board, and the Board does not determine
the federal courts' jurisdiction to review or enforce the Board's
decisions. Moreover, the bases for appeal to the Board and the courts
are both narrow, a fact which, when coupled with the many other
benefits that small rate case arbitration could provide, outweighs this
concern.
The Board will propose some modifications to the carriers' proposed
confidentiality provisions relating to appeals of the arbitration
decision, which are discussed in detail in the following section.\64\
In addition, the Board will propose adding a provision stating that
parties may seek judicial review of arbitration awards in a court of
appropriate jurisdiction pursuant to the Federal Arbitration Act, 9
U.S.C. 9-13, in lieu of seeking Board review. See proposed Sec.
1108.31(f).\65\ This provision already exists for the current
arbitration process. See 49 CFR 1108.11(b)(1). The Federal Arbitration
Act allows parties the right to seek: (i) An order confirming an
arbitration award, or (ii) direct judicial review of an arbitration
award for ``egregious departures from the parties' agreed-upon
arbitration.'' Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576
(2008). The Board sees no reason to exclude arbitrations under the
proposed program from the provisions of the Federal Arbitration
Act.\66\
---------------------------------------------------------------------------
\64\ It appears that Petitioners propose that the appealing
party file its notice of appeal as a means of providing public
notice that the appeal had become an official proceeding before the
Board, given that they also propose that all filings to the Board
concerning the arbitration be kept confidential. As discussed in the
following section, the Board proposes that a public version of those
filings must be submitted. Accordingly, a notice of appeal would be
unnecessary.
\65\ Petitioners propose regulatory language stating that ``A
party to an arbitration proceeding under this part may appeal the
arbitration decision only to the Board.'' (Pet., App. A at 10.) As
explained above, the Board will not include this in its proposed
regulations.
\66\ Additionally, some courts have held that these provisions
of the Federal Arbitration Act cannot be waived. See In re Wal-Mart
Wage & Hour Empl. Pracs. Litig. v. Class Couns. & Party to Arb., 737
F.3d 1262, 1267 (9th Cir. 2013) (``Just as the text of the [Federal
Arbitration Act] compels the conclusion that the grounds for vacatur
of an arbitration award may not be supplemented, it also compels the
conclusion that these grounds are not waivable, or subject to
elimination by contract.'').
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[[Page 67607]]
XI. Confidentiality
Petitioners characterize confidentiality as a ``key requirement for
future arbitrations.'' (Pet. 22.) They contend that if arbitration
decisions are made public, they could influence the marketplace and
drive up the stakes for railroads with similarly situated customers and
shippers that often move traffic over more than one railroad. (Id. at
22-23.) They suggest that this would be unfair given the expedited
timelines of the proposed program and the limited grounds for appellate
review. (Id.) They further contend that a confidential process would
focus the parties on the present dispute without the risk of setting
precedent in other cases or affecting the market expectations of other
entities in the supply chain. (Id.; see also Pet'rs Suppl. 8-9
(``[Petitioners] believe that confidentiality of arbitration decisions
will help railroads and shippers focus on a swift and amicable solution
to the rate dispute at hand, without having to worry about broader
implications.'')). Finally, they also contend that, under federal law,
there is a presumption of privacy and confidentiality in arbitrations.
(Id. (first citing Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559
U.S. 662, 686 (2010); and then citing Janvey v. Alguire, 847 F.3d 231,
248 (5th Cir. 2017)).)
As such, Petitioners propose that the ``entirety of the arbitration
process'' be deemed confidential. (Pet. 16, 23; id., App. A at 6-8.)
They propose that confidentiality would be effectuated through a
Confidentiality Agreement, and they include a proposed version of the
Confidentiality Agreement with the Petition. (Id. at 16; id., App. A at
8; id., App. B.) Petitioners further propose that the arbitration
decision would not be submitted to the Board as a matter of course,
which is required under the existing arbitration program (49 CFR
1108.9(e)), though a copy would be provided to the Board in the event
of an appeal. (Pet. 23, App. A at 9.) Petitioners also propose that
under no circumstances would the Board make publicly available a
redacted version of the arbitration decision, as currently required
under 49 CFR 1108.9(g). (Id., App. A at 9.)
Petitioners propose that, should there be an appeal, the notice of
appeal would be formally docketed and made public, but that it would
contain limited information. (Id. at 16; id., App. A at 10.)
Petitioners include a proposed version of the notice of appeal form
with the Petition. (Id., App. C.) Under Petitioners' proposal, parties
would be required to file all appellate submissions--including the
arbitration decision, the petition to vacate or modify the arbitration
award, and any reply--under seal, and no public versions would be
filed. (Id. at 16; id., App. A at 9-11.) They further propose that the
Board's appellate decision would be public but would require the Board
to maintain the confidentiality of the arbitration decision to the
``maximum extent possible,'' with particular attention paid to
``avoiding the disclosure of information that would have an effect or
impact on the marketplace.'' (Id., App. A at 11.) In addition, they
propose that in ``no event'' would the Board--in its decision ``or
otherwise''--disclose: ``(i) the specific relief awarded by the
arbitration panel, if any, or by the Board; or (ii) the Origin-
Destination pair(s) involved in the arbitration.'' (Id.) They also
propose a procedure by which parties would have the opportunity to
request redactions of the Board's decision prior to its public release.
(Id.)
To permit the Board to monitor the proposed small rate case
arbitration program, Petitioners propose that the parties would submit
a confidential summary to OPAGAC within 14 days after either receiving
the arbitration decision, the dispute settles, or the dispute is
withdrawn. (Id., App. A at 9-10.) The Petition includes a provision for
the Board to publish public quarterly reports on the final disposition
of arbitrated rate disputes under the proposed program, using only the
categories of information contained in the confidential summaries, and
not disclosing the identity of the parties to the arbitration. (Id.,
App. A at 10.) Petitioners propose that the summaries and quarterly
reports include only: (i) The geographic region of the movement(s) at
issue; (ii) the commodities at issue; (iii) the number of days from the
commencement of the arbitration proceeding to the final arbitration
decision; and (iv) a high-level, generic description of the resolution
(e.g., settled, withdrawn, dismissed on market dominance, or challenged
rates found unreasonable/reasonable). (Pet. 16.)
The USDA and shipper interests object to the idea that arbitration
decisions would be kept confidential. USDA states that Petitioners'
rationale for keeping decisions confidential is ``vague, unsupported by
any data, and, therefore, highly speculative (at best).'' (USDA Reply
2.) As noted above, it further states that ``[t]he fact that
transparency might `drive up the stakes' because railroads `may have
similarly situated customers' (i.e., other customers with unreasonable
rates) should be a reason for transparency, not a reason for secrecy.''
(Id. at 3.) NGFA also objects to keeping arbitration decisions
confidential, which it notes is contrary to NGFA's own private
arbitration program with BNSF and the regulations adopted by the Board
in Assessment of Mediation & Arbitration Procedures, EP 699 (STB served
May 13, 2013). (NGFA Reply 7-8); see also 49 CFR 1108.9(e), (g). NGFA
states that, in its experience, the prospect of a public decision often
incentivizes parties to settle. (NGFA Reply 8; see also Joint Shippers
Suppl. 9.) \67\ Olin argues that in prior arbitration rulemakings,
railroad interests opposed the idea of confidential arbitration
decisions. (Olin Reply 5.) It claims the fact that FORR decisions would
not be confidential is another reason why that approach is preferable
to arbitration. (Id. at 12; see also U.S. Wheat Suppl. 6.) In their
supplemental filing, the Joint Shippers argue that, if arbitration
decisions are kept confidential and railroads who participate in
arbitration are exempt from FORR, meaningful oversight would be nearly
impossible. (Joint Shippers Suppl. 8-9.)
---------------------------------------------------------------------------
\67\ NGFA indicates, however, that it would support redacting
confidential information from arbitration decisions, as provided in
the Board's existing regulations. (Id.)
---------------------------------------------------------------------------
Petitioners reiterate the need for confidentiality in their
supplemental filing. They argue that, without confidentiality, they
would not be willing to submit a complex rate reasonableness claim to
an arbitration panel using an expedited process with limited discovery
and appellate rights. (Pet'rs Suppl. 7.) They contend that
confidentiality is not a one-sided benefit to the railroads, as it
creates an environment in which railroads are willing to agree to
arbitrate small rate disputes quickly and with increased flexibility--
the very result shippers have been requesting, and the Board has been
seeking, for years. (Id. at 8.) They argue that if arbitration
decisions were public, parties ``would be motivated to throw the
proverbial kitchen sink into the arbitration'' rather than tailor the
scope of litigation to the amount immediately in controversy (even if
the decisions were deemed non-precedential). (Id. at 10.)
In response to NGFA's assertion that making arbitrations public is
in the public interest, Petitioners argue that the public interest is
better served by having an effective arbitration program, which can
only be accomplished through confidentiality. (Id.) Petitioners
[[Page 67608]]
also argue that the value of confidentiality in arbitration is not
disproven because some railroads expressed a different view in comments
on an arbitration program that proved to be unsuccessful. (Id. at 9
n.9.) Lastly, they state that the fact that the arbitration process
would be confidential does not implicate concerns about the integrity
of the process, as there are other safeguards in the proposed program,
most notably the arbitrator selection process and appellate process.
(Id. at 10.)
A. Confidentiality in General
Having considered the arguments, it appears that keeping
arbitration decisions issued under the proposed program confidential
would be more likely to serve as an incentive for carriers to
participate in the program.\68\ All else being equal, if a carrier has
the option between litigating the merits of a rate case before the
Board or arbitrating, with the decision in each being public, it is
reasonable to find the carrier is more likely to choose litigation,
where it has the benefit of more formal legal procedures. In addition,
as Petitioners note, one of the key benefits of the arbitration process
is its informal nature, which should make it more accessible to
parties, particularly small shippers. However, the benefits of
informality could be significantly undermined if the arbitration
decisions were made public. Specifically, the importance of a public
arbitration decision would be greatly elevated, as it could impact not
just the dispute at issue, but a broad range of other rate negotiations
and disputes. As such, each side would be much more likely to treat the
arbitration like litigation, which could have the effect of raising
costs to all parties. Further, even though arbitration decisions are
non-precedential, confidentiality may further encourage settlement in
some cases, as parties will not have to worry about the impact a
settlement may have on other rate negotiations.
---------------------------------------------------------------------------
\68\ Notably, section 11708 does not address confidentiality
specifically, although the provision at section 11708(c)(1)
authorizing the Board to make arbitration available through
procedures adopted in a rulemaking plainly permits imposition of
such a requirement.
---------------------------------------------------------------------------
The Board acknowledges Olin's point that the Board adopted 49 CFR
1108.9(g), which requires the public posting of arbitration decisions
under the existing program, at the urging of certain parties--including
rail carriers--that there be greater transparency. See Assessment of
Mediation & Arb. Procs., EP 699, slip op. at 15 (summarizing arguments
by AAR and UP advocating that the publicity of arbitration awards would
ensure transparency, discourage extreme positions, and incentivize
well-reasoned arbitration decisions, among other things). The Board
also understands the argument from USDA and NGFA that the fact that an
arbitration decision might impact other rate negotiations could be
considered more of a reason to make arbitration decisions public.
However, as with many other aspects of the proposed small rate case
arbitration program, there are trade-offs to both approaches.
Understanding that Petitioners have identified confidentiality as a
``key element'' of their proposal, and to encourage their
participation, the Board will propose that the arbitration process here
be kept confidential. Even though there were sound reasons for
requiring greater transparency in Assessment of Mediation & Arbitration
Procedures, Docket No. EP 699, the Board understands that a voluntary
arbitration program can only be successful if carriers and shippers are
willing to use it. The Board finds that the confidentiality trade-off
here (designed to incentivize the railroads to participate) is balanced
by other aspects of the Board's proposed program (designed to encourage
shipper participation), such as affirming a standard that gives the
arbitration panel flexibility in deciding what the rate should be and
allowing arbitrators to consider revenue adequacy evidence.\69\
---------------------------------------------------------------------------
\69\ As with market dominance determinations, see infra note 50,
the Board will determine whether an amendment to the confidentiality
regulations of the existing arbitration procedures should be made
after the completion of this rulemaking.
---------------------------------------------------------------------------
To allow the Board to monitor the proposed program, the Board will
propose that parties file confidential summaries of each arbitration.
The summaries should include the list of information proposed by
Petitioners,\70\ as well as whether the parties agreed to a different
relief cap or period than set forth in the regulations. The Board will
propose that the confidential summaries not be published, but that the
agency would issue a public quarterly report providing information
contained in the confidential summaries, which would not include the
identity of the parties to the arbitration. It is unclear whether
Petitioners intended for the summary to be shared within the Board,
including with the Board Members. The Board will propose that the Board
Members be permitted to review the summaries so that they would be able
to monitor how the arbitration program is being used in individual
cases. Moreover, there would no requirement that the identity of the
parties be revealed in the confidential summary, ensuring that that key
aspect of confidentiality would be maintained. Lastly, the Board will
clarify that parties would have to provide a confidential summary for
any matter in which a shipper has submitted an Initial Notice to the
carrier. See proposed Sec. 1108.29(e). This would ensure that the
Board is apprised of matters that are withdrawn or settled during the
mediation period. As noted, the Board will also propose a provision
requiring the agency to conduct an assessment of the effectiveness of
the program in the future. (See infra Section XIII.)
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\70\ Specifically, the summaries should include: (i) The
geographic region of the movement(s) at issue; (ii) the commodities
at issue; (iii) the number of days from the commencement of the
arbitration proceeding to the final arbitration decision; and (iv) a
high-level, generic description of the resolution (e.g., settled,
withdrawn, dismissed on market dominance, or challenged rates found
unreasonable/reasonable).
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However, as noted above, the Board will propose some modifications
to Petitioners' confidentiality provisions, specifically regarding
appeals of the arbitration decision to the Board. The Board discusses
how confidentiality would apply to the different aspects of the
proposed small rate case arbitration program below.
B. Arbitration Process and Decisions
The Board will propose that the arbitration process be
confidential, including discovery, filings to the arbitrators, the
Initial Notice and OPAGAC confirmation letter, the Joint Notice, and
confidentiality agreements concerning Waybill Sample data. By proposing
to treat these materials as confidential, the Board would not publish
them on its website or otherwise make them publicly available. The
Board will also propose that any telephonic or virtual conference
between the parties and the ALJ to resolve an objection to a party-
appointed arbitrator, and rulings by the ALJ on for-cause objections,
also be deemed confidential. Parties are invited to comment on whether
such communications would constitute ``dispute resolution
communications'' as defined by 5 U.S.C. 571(5), and as such would be
exempt from disclosure under FOIA pursuant to 5 U.S.C. 574(j).
In regard to the Joint Notice, the definition of ``dispute
resolution communication'' in 5 U.S.C. 571(5) does not include a
``written agreement to enter into a dispute resolution proceeding.'' To
ensure the confidentiality of the Joint Notice, the Board will not
propose that the parties include an express statement that the parties
agree to arbitrate in the Joint Notice. The fact that the parties agree
to
[[Page 67609]]
arbitrate is evidenced by their participation in the program. The Joint
Notice would merely be a means to inform OPAGAC when the arbitration
phase is underway regarding a dispute, as well as to notify the
Director of OE to release the Waybill Sample data to which parties are
entitled. As noted above, the Board will propose that specific
information regarding pending arbitrations contained in both the
Initial Notice and Joint Notice, including the identity of the parties,
would not be disseminated within the Board beyond the alternative
dispute resolution functions within OPAGAC.
As noted above, however, there is uncertainty about whether the
Board would be required to publish and/or release the rulings from the
Director of OE on requests for Waybill Sample data. See 49 CFR 1001.1
(specifying which Board records are available for public inspection);
49 U.S.C. 1306(b) (stating that rail matters require a ``written
statement of that action''); 5 U.S.C. 552(a)(2)(A) (requiring agencies
to make certain documents available to the public under FOIA). These
materials may not be produced in every arbitration, but for ones in
which they are, their release could result in the disclosure of the
existence of the arbitration and the identity of the participating
parties. Parties are invited to comment on whether such materials
require publication and/or whether there are alternative means of
preserving the confidentiality of these materials.
Finally, under the Board's proposed procedures, neither the
arbitration panel nor the parties would submit the arbitration decision
to the Board unless it were appealed. Accordingly, in the absence of an
appeal, the Board will not propose posting a redacted version of the
arbitration decision on its website, as it does for arbitrations under
the existing arbitration program. (See 49 CFR 1108.9(g).) (The extent
to which the arbitration decision can be kept confidential in the event
of an appeal is discussed in the following section.)
The Board will also propose a requirement that parties enter into a
Confidentiality Agreement, a model of which is included in Appendix A.
C. Appeals of Arbitration Decisions
The Board will propose that all subsequent appellate submissions--
including the arbitration decision, the petition to vacate or modify
the arbitration award, and any reply--be filed under seal. However, the
Board finds that Petitioners' proposal to have all appellate
submissions remain under seal is inconsistent with 49 CFR 1104.14,
which requires that ``[w]hen confidential documents are filed, redacted
versions must also be filed.'' In addition, while Petitioners have
cited authority for the proposition that privacy and confidentiality
can be important components of arbitration, there are countervailing
concerns once a party seeks judicial or administrative review of
arbitration decisions. Cf. Baxter v. Abbott Labs., 297 F.3d 544, 548
(7th Cir. 2002) (holding that parties' agreement to keep arbitration
confidential does not confer the ``right to keep third parties from
learning what th[e] litigation is about''). In addition, Petitioners
implicitly acknowledge that FOIA requires that Federal agencies make
publicly available both ``final opinions'' as well as ``orders'' made
in the ``adjudication of cases.'' 5 U.S.C. 552(a)(2)(A). The fact that
Board decisions would be public and precedential also weighs in favor
of requiring public versions of the filings that led to and support the
Board's decision.
Moreover, Petitioners have not explained (let alone acknowledged)
whether and to what extent the Board could withhold these submissions
should a third party seek access to them under the requestor provisions
of FOIA. See 5 U.S.C. 552(a)(3) (requiring that agencies make records
available to persons upon request). The Board can withhold certain
commercial information under the FOIA exemption at 5 U.S.C.
552(b)(4),\71\ but that exemption may not be broad enough to cover the
appellate submissions in their entirety, especially since certain
aspects of the arbitration award may not be commercial (such as the
arbitrator's reasoning).\72\ Having the parties prepare public versions
of their appellate submissions with commercial or financial information
redacted would likely obviate at least some FOIA requests and place the
Board in a more informed position to respond to any such request that
is made.
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\71\ This exemption specifically exempts from FOIA ``trade
secrets and commercial or financial information obtained from a
person and privileged or confidential.''
\72\ Indeed, the Administrative Dispute Resolution Act expressly
carves out final arbitration decisions from its definition of
``dispute resolution communications,'' which accordingly subjects
any such decisions in the government's possession to FOIA, provided
another FOIA exemption does not apply. See 5 U.S.C. 571(5), 574(j).
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The Board will therefore propose a process by which, following the
filing of sealed appellate submissions--including the arbitration
decision--the filing party would prepare a redacted, public version of
those documents; provide the other party an opportunity to request
further redactions; and submit the public version to the Board for
filing. See proposed Sec. 1108.31(a)(3).\73\ Any such public version,
and the material redacted therein, would be subject to a determination
by the Board that the redacted information was not properly designated
confidential or highly confidential, and an order from the Board that
the public version be resubmitted without the unsupported redactions.
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\73\ As noted above, see supra note 60, Petitioners' proposal
that parties file a notice of appeal is not necessary, as appellate
filings to the Board would be publicly filed.
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D. Board Decision of Arbitration Appeal
The Board will propose procedures for making publicly available a
redacted version of the Board's decision on appeal largely along the
lines proposed by Petitioners, including a requirement that the Board
pay particular attention to avoiding disclosure that would have an
effect on the marketplace. The Board agrees that confidentiality would
be a key component of the voluntary arbitration program and, as such,
would strive to keep any redacted commercial or financial material
within the underlying arbitration decision confidential, including, as
appropriate, through redactions to the public version of the Board's
decision. The Board notes, however, that it has modified the regulatory
text suggested by Petitioners. The language proposed by Petitioners
states that a ``Board decision that denies the petition to modify or
vacate will do so in a way that maintains the complete confidentiality
of the arbitration decision.'' (Pet., App. A at 11.) \74\ As explained
above, however, parties will be required to prepare a redacted, public
version of the arbitration decision for filing in the Board's docket,
and hence the arbitration decision will necessarily not be
``complete[ly] confidential[ ].''
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\74\ Petitioners also propose a provision which states that,
``[i]n the event an arbitration decision is appealed to the Board .
. . , the arbitration decision shall be filed under seal and . . .
shall remain confidential on appeal.'' (Pet., App. A at 9.)
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Petitioners further propose that the Board shall ``[i]n no event''
disclose the specific relief awarded by the arbitration panel or by the
Board, or the origin-destination pair involved in the arbitration.
Although in most instances the Board would be able to rule on the
appeal without having to disclose the arbitrators' award or origin-
destination pair, the Board cannot be certain that this will always be
possible, as it may need to address these aspects of the underlying
arbitration decision to provide a clear explanation of its appellate
ruling. For these reasons, the
[[Page 67610]]
Board has modified Petitioners' proposed language to state that the
Board will maintain the confidentiality of the arbitration decision--
including the award and origin-destination pair--to the ``maximum
extent possible.'' Parties are invited to comment on whether the Board,
should it have to reference the arbitrators' award and/or origin-
destination pair in its decision, should redact this information from
any decision that it makes publicly available, including whether and to
what extent it would be permitted to do so under FOIA.\75\ In addition,
the Board invites parties to comment on whether there are other
categories of information that should not be publicly disclosed in its
decision, beyond the specific relief awarded and any origin-destination
pairs. See Food Mktg. Inst. v. Argus Leader Media, 139 S. Ct. 2356,
2363 (2019) (suggesting that confidentiality under the FOIA exemption
at 5 U.S.C. 552(b)(4) may turn on whether the government promises to
keep the information private).
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\75\ It should also be noted that, even if the Board were to
redact this information, it is not the final arbiter in FOIA matters
and thus cannot guarantee the continued confidentiality of material
that Petitioners propose not be disclosed. See 5 U.S.C. 552(a)(4)(B)
(authorizing federal district courts to review FOIA matters ``de
novo'' and order production of agency records withheld under a FOIA
exemption).
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XII. Precedential Value
Petitioners propose that arbitration decisions issued under the
proposed program would have no precedential value and, as such, that
past arbitration decisions would be deemed inadmissible. NGFA states it
does not object to decisions having no precedential value. (NGFA Reply
8.) This would also be consistent with section 11708(d)(5), which
expressly provides that arbitration decisions have no precedential
effect in any other or subsequent arbitration dispute, as well as the
Board's existing arbitration program at 49 CFR 1108.10. Accordingly,
the Board will propose that arbitration decisions have no precedential
value. The Board will also propose that any such decisions are
inadmissible in other arbitrations.
XIII. Program Review
Finally, the Board agrees with those shippers who have argued that
there would be benefits to a review of the proposed small rate case
arbitration program after a period of time to ensure that the program
is working as intended and proving effective. (USDA Reply 3; NGFA Reply
5.) Petitioners have stated that they would agree to the Board
conducting such an assessment at the end of a three-year term. (Pet'rs
Suppl. 5.) Accordingly, the Board will propose a provision that a
review of the proposed program be conducted in the future. The Board
will propose that the review occur after a reasonable number of
arbitrations have been conducted, though not later than three years
after start of the program. See proposed Sec. 1108.32. Depending on
the outcome of such review, the Board may determine that the
arbitration program will continue or that the arbitration program
should be terminated or modified at that time.
The Board seeks comment on how it would conduct such a review and
the nature of the information it should seek to collect from those who
have participated in the arbitration program, including whether the
Board should require or request the submission of arbitration decisions
as part of its review process.
Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612,
generally requires a description and analysis of new rules that would
have a significant economic impact on a substantial number of small
entities. In drafting a rule, an agency is required to: (1) Assess the
effect that its regulation will have on small entities, (2) analyze
effective alternatives that may minimize a regulation's impact, and (3)
make the analysis available for public comment. Sections 601-604. In
its notice of proposed rulemaking, the agency must either include an
initial regulatory flexibility analysis, section 603(a), or certify
that the proposed rule would not have a ``significant impact on a
substantial number of small entities,'' section 605(b). Because the
goal of the RFA is to reduce the cost to small entities of complying
with federal regulations, the RFA requires an agency to perform a
regulatory flexibility analysis of small entity impacts only when a
rule directly regulates those entities. In other words, the impact must
be a direct impact on small entities ``whose conduct is circumscribed
or mandated'' by the proposed rule. White Eagle Coop. v. Conner, 553
F.3d 467, 480 (7th Cir. 2009).
This proposal would not have a significant economic impact on a
substantial number of small entities within the meaning of the RFA.\76\
The proposal imposes upon small railroads no new record-keeping or
reporting requirements. Nor does this proposed rule circumscribe or
mandate any conduct by small railroads; participation in the
arbitration program proposed here is strictly voluntary. To the extent
that the rules have any impact, it would be to provide faster
resolution of a controversy at a lower cost, especially relative to the
Board's existing Stand-Alone Cost, Simplified-SAC, and Three-Benchmark
tests. The $4 million relief cap and two-year prescription period would
also limit a participating small railroad's total potential liability.
Moreover, the purpose of the proposed rules is to create an arbitration
process to resolve smaller rate disputes, but as the Board has
previously concluded, the majority of railroads involved in rate
proceedings are not small entities within the meaning of the RFA.
Simplified Standards, EP 646 (Sub-No. 1), slip op. at 33-34. Since the
inception of the Board in 1996, only three of the 51 cases challenging
the reasonableness of freight rail rates have involved a Class III rail
carrier as a defendant. Those three cases involved a total of 13 Class
III rail carriers. The Board estimates that there are today
approximately 656 Class III rail carriers. Therefore, the Board
certifies under 5 U.S.C. 605(b) that this proposed rule, if
promulgated, would not have a significant economic impact on a
substantial number of small entities as defined by the RFA.
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\76\ For the purpose of RFA analysis for rail carriers subject
to the Board's jurisdiction, the Board defines a ``small business''
as only including those carriers classified as Class III rail
carriers under 49 CFR 1201.1-1. See Small Entity Size Standards
Under the Regul. Flexibility Act, 81 FR 42566 (June 30, 2016), EP
719 (STB served June 30, 2016) (with Board Member Begeman
dissenting).
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This decision will be served upon the Chief Counsel for Advocacy,
Office of Advocacy, U.S. Small Business Administration, Washington, DC
20416.
Paperwork Reduction Act
Pursuant to the Paperwork Reduction Act (PRA), 44 U.S.C. 3501-3521,
Office of Management and Budget (OMB) regulations at 5 CFR
1320.8(d)(3), and Appendix B, the Board seeks comments about the impact
of the new collection for the Arbitration Program for Small Rate Cases
(OMB Control No. 2140-XXXX), concerning: (1) Whether the collections of
information, as added in the proposed rule, and further described
below, are necessary for the proper performance of the functions of the
Board, including whether the collections have practical utility; (2)
the accuracy of the Board's burden estimates; (3) ways to enhance the
quality, utility, and clarity of the information collected; and (4)
ways to minimize the burden of the collection of information on the
respondents,
[[Page 67611]]
including the use of automated collection techniques or other forms of
information technology, when appropriate.
The Board estimates that the proposed new requirements would add a
total hour burden of 273 hours. There are no non-hourly burdens
associated with these collections. The Board welcomes comment on the
estimates of actual time and costs of the collection of (a) Arbitration
``Opt-In'' Notices (b) Notices of Intent to Arbitrate, (c) Joint
Notices to Arbitrate, (d) Post-Arbitration Summaries, and (e) Appeals
of Arbitrators' Decision, as detailed below in Appendix B. Other
information pertinent to these collections is also included in Appendix
B. The proposed rule will be submitted to OMB for review as required
under 44 U.S.C. 3507(d) and 5 CFR 1320.11. Comments received by the
Board regarding these information collections will also be forwarded to
OMB for its review when the final rule is published.
List of Subjects
49 CFR Part 1011
Administrative practice and procedure, Authority delegations
(Government agencies), Organization and functions (Government
agencies).
49 CFR Part 1108
Administrative practice and procedure, Railroads.
49 CFR Part 1115
Administrative practice and procedure.
49 CFR Part 1244
Freight, Railroads, Reporting and recordkeeping requirements.
It is ordered:
1. The Board proposes to amend its rules as detailed in this
decision. Notice of the proposed rules will be published in the Federal
Register.
2. Comments are due by January 14, 2022. Reply comments are due by
March 15, 2022.
3. A copy of this decision will be served upon the Chief Counsel
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
4. This decision is effective on its service date.
Decided: November 12, 2021.
By the Board, Board Members Begeman, Fuchs, Oberman, Primus, and
Schultz. Board Member Begeman concurred in part with a separate
expression. Board Member Primus concurred with a separate expression.
BOARD MEMBER BEGEMAN, concurring in part:
I am convinced that a voluntary arbitration program could provide a
rate review alternative to litigation that some stakeholders might
prefer. In fact, I have repeatedly voted to improve the Board's
existing voluntary arbitration program, yet that program remains
unused. That is why I welcomed Petitioners' proposal and supported
instituting this proceeding under my Chairmanship, even planning that
the Board would work to propose a rule by March of this year. See
Report on Pending STB Regul. Proc. Fourth Quarter 2020 at 9 (Jan. 4,
2021).
While I generally support the Board's attempt here to try yet again
to establish a voluntary arbitration program that will be utilized,
this time one designed for smaller rate disputes (and am pleased that
the notice of proposed rulemaking is finally being issued and will
provide the opportunity for public input), I do not support every
aspect of this proposal. Most significantly, I strongly disagree with
the decision calling into question whether the Board will ever adopt a
rate review process to ensure shippers with smaller disputes have a
means to formally challenge the reasonableness of a rate before the
Board.
The Board's existing rate review processes are unworkable for
shippers with smaller disputes, and frankly many with larger ones. As
Olin Corporation correctly points out in its August 20, 2020 reply, the
Board has an obligation to establish effective rate relief rules for
all shippers, and that obligation is not discretionary.
BOARD MEMBER PRIMUS, concurring:
While I support the concept of
[…truncated; see source link]Indexed from Federal Register on November 26, 2021.
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