Rule2022-27924
Joint Petition for Rulemaking To Establish a Voluntary Arbitration Program for Small Rate Disputes
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 4, 2023
Effective
February 3, 2023
Issuing agencies
Surface Transportation Board
Abstract
The Surface Transportation Board (STB or Board) adopts a final rule modifying its regulations to establish a voluntary arbitration program for small rate disputes.
Full Text
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<title>Federal Register, Volume 88 Issue 2 (Wednesday, January 4, 2023)</title>
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[Federal Register Volume 88, Number 2 (Wednesday, January 4, 2023)]
[Rules and Regulations]
[Pages 700-738]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-27924]
[[Page 699]]
Vol. 88
Wednesday,
No. 2
January 4, 2023
Part IV
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; Final Rule
Federal Register / Vol. 88 , No. 2 / Wednesday, January 4, 2023 /
Rules and Regulations
[[Page 700]]
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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: Final rule.
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SUMMARY: The Surface Transportation Board (STB or Board) adopts a final
rule modifying its regulations to establish a voluntary arbitration
program for small rate disputes.
DATES: This rule is effective February 3, 2023.
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: The Board issued a notice of proposed
rulemaking on November 15, 2021, published in the Federal Register on
November 26, 2021 (86 FR 67588), to modify its regulations to establish
a voluntary arbitration program for small rate disputes. Joint Pet. for
Rulemaking to Establish a Voluntary Arbitration Program for Small Rate
Disputes (Arbitration NPRM), EP 765 (STB served Nov. 15, 2021). Under
this new arbitration program, Class I rail carriers would voluntarily
agree to arbitrate small rate disputes up to $4 million over a two-year
relief period. As proposed, the Class I carriers that agreed to
participate in this new arbitration program would do so for a five-year
term, subject only to a right to withdraw from the program if there is
a material change in the law, while complainants would participate on a
case-by-case basis.\1\ The Board's proposed voluntary arbitration
program also included several other features intended to incentivize
railroad and shipper participation, and to ensure that the program is
fair and balanced. The new arbitration process would function alongside
the existing arbitration program at 49 CFR part 1108.
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\1\ In Arbitration NPRM, the Board generally referred to
``shippers'' when discussing parties that would initiate
arbitration. However, the Board noted that parties other than
shippers have standing to bring rate challenges. See Arbitration
NPRM, EP 765, slip op. 9 n.16 (citing Publ'n Requirements for Agri.
Prods., EP 526 et al., slip op. at 7-8 (STB served Dec. 29, 2016).
Although the Board used the term ``shipper/complainant'' in the
proposed regulations, the Board has changed references to ``shipper/
complainant'' to ``complainant'' in the final rule.
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In a related proceeding, the Board issued a supplemental notice of
proposed rulemaking proposing a new rate case procedure for smaller
cases called Final Offer Rate Review (FORR), Final Offer Rate Rev.
(FORR SNPRM), EP 755 (STB served Nov. 15, 2021), which was also
published in the Federal Register on November 26, 2021 (86 FR 67622).
As part of Arbitration NPRM, the Board proposed that carriers that
participate in the new small rate case arbitration program would be
exempt from rate challenges under the process being proposed in FORR
SNPRM. The Board issued the decisions concurrently so that it could
consider the pros and cons of such an exemption and allow stakeholders
to fully compare the arbitration and FORR proposals.
For the reasons discussed below, the Board adopts a final rule
establishing a new arbitration program for resolution of small rate
disputes. Under certain circumstances, participating carriers will be
exempted from challenges under the FORR process, which are also being
adopted today in a separate decision.
Background
The Board has had a voluntary arbitration process available to
parties to resolve disputes since 1997. See Arb. of Certain Disputes
Subject to the Statutory Jurisdiction of the STB, 2 S.T.B. 564 (1997).
Originally, parties wishing to use this process needed to agree to
arbitrate disputes on a case-by-case basis. See id. However, in 2013,
the Board modified the arbitration procedures in Assessment of
Mediation & Arbitration Procedures, EP 699 (STB served May 13, 2013)
(revising and consolidating the Board's arbitration procedures). Among
other things, the Board modified its regulations to establish a program
through which a party could voluntarily agree in advance to arbitrate
particular types of disputes within clearly defined liability limits.
However, rate disputes were not included in this program. Id. at 4, 7-
9.\2\
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\2\ Although rate disputes were not included on the list of
matters parties could agree to arbitrate in advance, the revised
regulations did permit parties to agree to arbitrate additional
matters on a case-by-case basis, 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), Public Law 114-110 Sec. 13, 129
Stat. 2228, 2235-38, codified at 49 U.S.C. 11708, Congress required the
Board to promulgate new regulations establishing a voluntary and
binding arbitration process, including adding disputes involving rates
to the list of arbitration-eligible matters. To fulfill the
requirements of section 13, the Board adopted changes to its
arbitration process in Revisions to Arbitration Procedures (Revisions
Final Rule), EP 730 (STB served Sept. 30, 2016), including adding rate
disputes as an arbitration-eligible matter. Three Class I carriers have
opted into the Board's arbitration program for certain types of
disputes (though not rate disputes).\3\ However, to date, no parties
have opted to utilize the Board's arbitration process.
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\3\ See Union Pacific Railroad Company (UP) Notice (June 21,
2013), CSX Transportation, Inc. (CSXT) Notice (June 28, 2019), and
Canadian National Railway Company (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. After holding
informal meetings throughout 2018, the RRTF issued a report on April
25, 2019 (RRTF Report). With respect to small rate disputes, the RRTF
recommended, among other things: (1) legislation by Congress to permit
mandatory arbitration of small rate disputes and (2) establishment by
the Board of 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.
In September 2019, the Board proposed FORR as a new procedure for
challenging the reasonableness of railroad rates in smaller cases. See
Final Offer Rate Rev. (FORR NPRM), EP 755 (STB served Sept. 12, 2019).
FORR was based on a final offer selection procedure similar to the one
described by the RRTF. FORR NPRM, EP 755, slip op. at 7. 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 resolving 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.\4\
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\4\ 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, EP 761.
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[[Page 701]]
The Board subsequently issued a decision in that proceeding to
permit 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
also 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. Ex parte meetings with stakeholders occurred
throughout the summer of 2020. See Arbitration NPRM, EP 765, slip op.
at 4 (summarizing the content of the ex parte meetings).
On July 31, 2020, five of the Class I carriers--CN,\5\ CSXT, The
Kansas City Southern Railway Company (KCS), Norfolk Southern Corp.
(NSR),\6\ and UP (collectively Petitioners)--filed a petition for
rulemaking, asking the Board to add a new arbitration program focused
specifically on resolving small rate disputes. Their proposed
arbitration program, which would function alongside the existing
arbitration program at 49 CFR part 1108, included changes that the
carriers argued would create a more streamlined and flexible
arbitration process which, in turn, would better incentivize both
railroad and shipper participation. (Pet. 3, 21-25 (summarizing
carrier's key proposed changes from the existing arbitration process).)
Petitioners argued that a working arbitration program for small rate
disputes would provide improved accessibility to the Board's rate
review relief while also serving as an approach superior to FORR in
fairness, legality, and economic integrity. (Id. at 1.)
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\5\ 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.
\6\ Although the Petition referred to Norfolk Southern Corp., a
noncarrier, subsequent filings instead refer to that entity's
operating affiliate, Norfolk Southern Railway Company.
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Several parties representing shipper interests opposed Petitioners'
request for the Board to adopt a new arbitration program; instead, they
urged the Board to adopt FORR. See Arbitration NPRM, EP 765, slip op.
at 5-6 (summarizing filings in response to the petition for
rulemaking). After considering the comments, the Board instituted a
rulemaking proceeding to consider the petition for rulemaking on
November 25, 2020, and then issued Arbitration NPRM setting forth the
Board's arbitration proposal on November 15, 2021.
As an initial matter, in Arbitration NPRM the Board stated that its
authority to create procedures for arbitrating rate cases derives from
49 U.S.C. 11708 and that, even though the agency already had an
existing arbitration process created pursuant to that statute, there
was no language in section 11708 prohibiting the Board from
establishing a dual-track arbitration program. Arbitration NPRM, EP
765, slip op. at 10-11.
The Board stated that it decided to pursue a new arbitration
program focused exclusively on small rate disputes for the following
reasons. First, the Board noted that Congress required rate disputes to
be included as an arbitration-eligible matter and that the agency's own
long-stated policy had been to favor the resolution of disputes through
the use of mediation and arbitration procedures rather than formal
Board proceedings whenever possible. Arbitration NPRM, EP 765, slip op.
at 8. As such, the Board concluded that ``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.'' Id. Second,
the Board found that a voluntary arbitration program focused on the
resolution of small rate disputes could further the rail transportation
policy of 49 U.S.C. 10101. Id. Lastly, the Board stated that if the
FORR process was adopted, the rail carriers were likely to challenge it
in court; by contrast, if all the Class I carriers agreed to
participate in the arbitration program for five years, shippers would
have a new avenue of potential rate relief with the certainty of
carrier engagement. Id. at 9.
The Board's proposal in Arbitration NPRM was modeled on some, but
not all, aspects of the proposal set forth in Petitioners' petition for
rulemaking. The Board made modifications where it found aspects of
Petitioners' proposal were unbalanced or simply not feasible, or where
changes were needed to better incentivize carrier and shipper
participation. Id. at 9-10. The Board proposed the following
fundamental aspects as part of the new arbitration program in
Arbitration NPRM:
<bullet> First, the Board decided to defer final action in the FORR
docket so that it could jointly consider adoption of a small rate case
arbitration program and the FORR process as avenues of regulatory
relief. Arbitration NPRM, EP 765, slip op. at 9 (``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.'').
<bullet> Second, the ultimate decision on whether to adopt a new
arbitration program would be influenced by whether all Class I carriers
agreed to participate for a term of five years. Id. at 9
(``[F]undamental 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.'').
<bullet> Third, if the carriers chose to participate in the
arbitration program, they would be exempt from having their rates
challenged under the FORR process. Id. at 14 (``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.'').
<bullet> Fourth, under the carriers' agreement to participate for a
five-year term, carriers would be permitted to withdraw from the
program only if there is a material change in the law. Id. at 16 (``The
Board will propose a provision allowing any party to withdraw due to a
material change in the law.'') However, whether the Board included this
right to withdraw would be influenced by whether there was another
``readily accessible small rate case review process [to serve] as a
backstop in the event a carrier is no longer participating in the
arbitration program.'' Id. at 11-12.
Comments in response to Arbitration NPRM were filed on January 14,
2022, by American Fuel & Petrochemical Manufacturers (AFPM); the
Association of American Railroads (AAR); BNSF Railway Company (BNSF);
Indorama Ventures (Indorama); the Industrial Minerals Association-North
America (IMA-NA); the National Grain and Feed Association (NGFA); Olin
Corporation (Olin); the U.S. Department of Agriculture (USDA); the
American Chemistry Council, Corn Refiners Association, Institute of
Scrap Recycling Industries, National Industrial Transportation League,
The Chlorine Institute, and The Fertilizer Institute (collectively,
Coalition Associations); \7\
[[Page 702]]
and CSXT, KCS, NSR, UP, the U.S. operating subsidiaries of Canadian
Pacific (CP), and the U.S. operating subsidiaries of CN (collectively,
Joint Carriers).\8\ Replies were filed on April 15, 2022, by AAR,
Coalition Associations, and Joint Carriers.
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\7\ In prior comments submitted in this docket, these parties
referred to themselves as ``Joint Shippers,'' which was the
designation also used by the Board in Arbitration NPRM. In their
comments, these groups explain that they now refer to themselves as
``Coalition Associations'' to maintain consistency with the
designation they have used in Final Offer Rate Review, Docket No. EP
755. (Coalition Ass'ns Comment 1 n.1.) The Board will also refer to
these parties as Coalition Associations in this decision.
\8\ These carriers comprise six of the existing seven Class I
carriers. The other Class I carrier, BNSF, filed separate comments.
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For the reasons set forth below, the Board will adopt regulations
implementing a new arbitration program devoted exclusively to resolving
small rate disputes. In Part I, the Board explains the fundamental
aspects of the new arbitration program. In Part II, the Board explains
the limits on the number of arbitrations that may be brought under the
new program. In Part III, the Board discusses the procedural aspects of
the arbitration process. The text of the final rule is set forth below.
In this final rule, the Board will make certain modifications to
its proposal in Arbitration NPRM. Unless specifically discussed below,
any proposed regulation in Arbitration NPRM not discussed here was not
addressed in the comments or replies and is therefore being adopted
without change. Any textual changes not specifically discussed are non-
substantive and designed to give the regulatory text more clarity.
As noted, in a decision being issued concurrently in Final Offer
Rate Review (FORR Final Rule), EP 755 (STB served Dec. 19, 2022), the
Board will also adopt the FORR process to serve as an alternative to
the new arbitration program in the event that the arbitration program
does not become operative because all Class I carriers have not opted
in. Additionally, in the event a carrier subsequently withdraws from
the program, the FORR process will apply to that carrier.
Part I--Fundamentals of the Small Rate Case Arbitration Program
For the reasons discussed below, the Board will adopt a final rule
implementing a new small rate case arbitration program. However, to
incentivize railroad participation in the arbitration program, the
Board will allow carriers to be exempt from rate challenges under the
FORR process during their participation in the arbitration program.
In addition, the Board finds that it is important that shippers
across the rail network have access to the same means of rate relief.
Accordingly, for the arbitration program to become operable, the Board
will require that all Class I carriers agree to participate in the
program. If all Class I carriers agree, the Board will issue a notice
that commences the new arbitration program, allowing it to be used and
initiating the FORR exemption.
Class I carriers will have a limited window--20 days from the
effective date of these regulations--to decide whether to participate
in the new arbitration program. If not all Class I carriers
participate, the Board will not issue the notice commencing the new
arbitration program, resulting in the program being inoperable, and all
Class I carriers will be subject to rate challenges under the FORR
process. By agreeing to participate, carriers would commit to
participate in any arbitrations brought against them under this program
for a five-year term.
Lastly, if the arbitration program becomes operable, the Board will
allow carriers to withdraw on an individual basis during the five-year
term if there is a material change in the law affecting regulation of
railroad rates. The withdrawal of one or more carriers on the basis of
a material change in law will not terminate the arbitration program
once it has become effective but will subject the withdrawing carrier
to challenges under the FORR process.
A. Comments
1. Shipper Interests
Several parties representing shipper interests argue that the Board
should not adopt an arbitration program in place of adopting FORR
because the new arbitration process does not accomplish the goal of
making rate relief more accessible to shippers than it is under the
Board's existing rate case methodologies. Similarly, several of the
shipper interests claim that FORR is the superior process in terms of
providing more accessibility to rate relief. As such, they argue that
if the Board does adopt the arbitration program, it should eliminate
the FORR exemption so that shippers have the choice of whether to bring
challenges under arbitration or FORR.
Olin. Olin requests that the Board adopt the FORR proposal because
the arbitration process contains mechanisms that favor railroads. (Olin
Comment 1.) Olin states that if the Board does decide to adopt the new
arbitration program, the Board should not allow participating rail
carriers to be exempt from FORR. (Id. at 1-2.) Olin argues that the
Arbitration NPRM proposal undermines all the potential value of the
FORR process and that the two processes are fundamentally inconsistent
with each other. (Id. at 2.) According to Olin, the Board has
essentially proposed a new rate case process for small disputes, while
simultaneously proposing to make it unavailable for use. (Id. at 10.)
Olin also disputes that arbitration will necessarily be quicker, less
expensive, more reliable, or more predictable than an adjudication
before the Board because carriers will still have the ability to delay
and increase costs and complexity. (Id. at 11.)
Coalition Associations. In their comment, Coalition Associations
state that their main concern with the proposal set forth in
Arbitration NPRM is the FORR exemption. (Coalition Ass'ns Comment 1.)
They argue that the FORR exemption effectively requires shippers to
arbitrate their rate claims, even though the Board does not have
authority to impose such a requirement. (Id. at 1-2.) Coalition
Associations also argue that the FORR exemption would be inconsistent
with the goal of increasing access to rate review because the
arbitration program includes features that make it inaccessible. (Id.
at 2, 6-7.) Accordingly, they argue that if the Board insists on
keeping the FORR exemption, it should address concerns about
accessibility by making the program public, eliminating the case
limits, and ensuring complainants have access to the Waybill Sample.
(Id. at 2, 7.)
In their reply, Coalition Associations argue that the Board should
adopt FORR, but if it also chooses to adopt the arbitration program, it
should eliminate the FORR exemption. (Coalition Ass'ns Reply 5.) They
maintain that if the new arbitration program was the best path forward
for stakeholders, there would be no need to exempt participating
railroads from rate challenges under FORR. (Id. at 5.) They argue that
the new arbitration program contains both higher risks and higher costs
for shippers than FORR. (Id.) In particular, they claim that the new
arbitration program is less accessible than FORR because the program
includes confidentiality requirements, case limits, discovery limits,
waybill access limits, and a longer evidentiary phase. (Id. at 5-10.)
Coalition Associations argue that carriers will still have a strong
incentive to participate in the arbitration program even if the Board
eliminates these features. In particular, they argue that the non-
precedential nature of arbitration decisions would be attractive to
carriers. (Id. at 10.) They argue that a non-precedential decision
``provides shippers with no certainty that they will
[[Page 703]]
prevail in a rate challenge and, thus, little leverage in rate
negotiations.'' (Id. at 11.) They claim that the non-precedential
nature of arbitration decisions is even more valuable given that FORR
decisions would be precedential and the likelihood that a railroad
would receive an adverse decision under FORR is high. (Id.)
IMA-NA and Indorama. IMA-NA and Indorama state they would only
support the new arbitration program if the Board eliminates the FORR
exemption for railroads that participate in the program. (IMA-NA
Comment 2, 17; Indorama Comment 2, 17.) They state that FORR is an
acceptable process given that it is already used in a number of
existing rail and non-rail contexts. (IMA-NA Comment 7-9; Indorama
Comment 7-9.) They also urge the Board to eliminate various aspects of
the new arbitration program proposed in Arbitration NPRM so that the
new arbitration program is more in line with FORR. Specifically, they
argue that the Board should eliminate the limits on the number of
arbitrations, the confidentiality requirements, the non-precedential
nature of arbitration decisions, and discovery limits. (IMA-NA Comment
19; Indorama Comment 19.) \9\
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\9\ IMA-NA and Indorama note that if the Board eliminated the
FORR exemption, then these aspects of the new arbitration program
would be less of a concern because shippers would have the option to
choose which of the two processes they want to use. (IMA-NA Comment
19; Indorama Comment 19.)
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NGFA. NGFA supports a new arbitration program for small rate
disputes but states that it does not view such a program as a
substitute for the Board finalizing FORR. NGFA argues that the two
processes can be structured in a way to coexist and complement one
another. NGFA therefore strongly opposes the idea of adopting the new
arbitration program but not FORR. (NGFA Comment 2-3.)
NGFA states that its members generally do not support an
arbitration program that would eliminate the ability of a rail shipper
to file a formal complaint to test the reasonableness of rail rates
using any of the Board's legally available rate-reasonableness
methodologies. However, NGFA states that it also favors arbitration to
resolve disputes. (Id. at 4.) Accordingly, NGFA argues that the Board
should reconsider a proposal that NGFA made in response to the initial
petition for rulemaking, specifically, that the FORR exemption last
only until the Board conduct its programmatic review, at which point
the FORR exemption would expire. (Id. at 5.)
AFPM. AFPM supports adoption of the arbitration program in addition
to FORR (not as an alternative), because it believes that FORR provides
more promise in providing viable options for shippers to dispute small
rate cases. (AFPM Comment 2.) AFPM argues that the FORR exemption is a
``non-starter.'' (Id. at 5.) It argues that shippers should have the
option to pursue a dispute through either FORR or the new arbitration
program, because railroads should not be able to limit shippers'
options by simply participating in the arbitration program. (Id. at 2.)
AFPM also notes that a FORR exemption would provide no incentive for
carriers to seek improvements to a voluntary arbitration program. (Id.
at 4.) It also argues that the FORR exemption could disadvantage
shippers if one program turns out to be superior or not viable. (Id. at
6.)
2. USDA
USDA argues that, between the proposals for a new arbitration
program and FORR, FORR is the better and more necessary of the two.
However, it states that the ``differences [between the two proposals]
are small relative to the benefits that would be provided by either
FORR alone or'' jointly adopting both proposals. (USDA Comment 2.) USDA
emphasizes the need for at least finalizing FORR because participation
in a new arbitration program will not be compelling without an
effective litigatory backstop. (Id.) Conversely, USDA states that there
is little benefit in just adopting a new arbitration program by itself.
(Id. at 3.) \10\
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\10\ USDA argues that one of the main differences between FORR
and the proposed arbitration process is in how a decision is made.
Specifically, it claims that the process for deciding where to set
the rate is clear in FORR but unclear in arbitration. (USDA Comment
3.) The Board addresses this concern below (see infra Part III.E).
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USDA's key concern with the Arbitration NPRM proposal is that it is
voluntary. (Id.) USDA argues that private firms do not typically need
the government to implement voluntary tools because they will readily
take advantage of mutually beneficial opportunities and, therefore,
carriers here should not be exempt from FORR. USDA argues that, under
the Board's scheme, the arbitration program is not voluntary because it
allows railroads to choose which process works best for them and
shippers simply have to go along with it. (Id.) USDA argues that if
FORR is finalized, there is nothing preventing shippers and railroads
from engaging in their own truly voluntary arbitration process (one
where both shippers and railroads have opted in). According to USDA,
adoption of FORR (without the new arbitration program and a FORR
exemption) would actually incentivize shippers and railroads to come up
with their own arbitration process. (Id.)
3. Railroad Interests
The railroad interests support adoption of the arbitration program
over FORR, as well as the adoption of an exemption from the FORR
process for carriers that choose to participate in the arbitration
program.
Joint Carriers. Joint Carriers argue that the purpose of the
arbitration program should not be to provide a limitless forum for
resolving any and all rate disputes, particularly since shippers can
still seek resolution of their rate disputes through processes such as
Three-Benchmark and Simplified Stand-Alone Cost (Simplified-SAC).
(Joint Carriers Reply 2-3, 12.) Instead, Joint Carriers argue that the
arbitration program should be tailored to providing a quick, cost-
effective process for resolving modest rate disputes. (Id. at 13.) \11\
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\11\ Joint Carriers further argue that ``distinguished
economists'' who have studied these matters have concluded there is
no evidence that the Board's current approaches are failing or
generating excessive revenues, that the Simplified-SAC process
provides an effective tool to protect captive shippers, and the
reason that shippers do not often use these formal processes could
be that carriers are not charging unreasonable rates to captive
shippers. (Joint Carriers Reply 6-7.)
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Joint Carriers also oppose the idea of eliminating the FORR
exemption. They also oppose NGFA's suggestion that the FORR exemption
last three years. Instead, they argue that the FORR exemption should
last for as long as carriers participate in the arbitration program.
(Joint Carriers Reply 15.)
BNSF. BNSF states that the new arbitration program is a far better
path to addressing shipper needs than the FORR proposal. (BNSF Comment
1.)
AAR. AAR supports the ``goals and general approach'' set forth in
Arbitration NPRM; however, it suggests some improvements. (AAR Comment
1.) AAR asserts that the Board's arbitration proposal improves the
current arbitration program and will be viewed by both railroads and
shippers as a more fair and viable approach to small rate disputes.
(Id. at 3.) In particular, AAR supports the various protections the
Board proposed to keep the arbitration process confidential, the
ability of parties to select arbitrators not on the roster, the ability
of the arbitration panel to rule on market dominance and the one-case-
per-shipper limit that would prevent improper disaggregation of cases.
(Id. at 4-6.)
AAR also disputes Olin's assertion that arbitration is not
necessarily more
[[Page 704]]
efficient than administrative litigation. (AAR Reply 10.) In response
to Olin's contention that Class I railroads would use every tactic at
their disposal to make arbitration difficult, AAR states that Olin does
not explain why it would be improper for a carrier to exercise its
constitutional right to defend itself from an accusation that it has
violated federal law. (Id.) AAR argues that, in any event, Olin cannot
seriously dispute that arbitration is widely considered a more
efficient means of dispute resolution. (Id.) AAR argues that if Olin's
concerns about railroads' ability to drive up the costs of arbitration
program later materialize, the Board can address it at that time. (Id.
at 10-11.)
AAR states that if the Board does move ahead with FORR, it should
adhere to its proposed approach of allowing participating carriers to
be exempt from FORR. (Id. at 10.)
B. Board Action
1. Adoption of the Arbitration Program, FORR, and the FORR Exemption
The Board has explained the need for a new process that makes rate
relief more accessible to shippers, particularly those with small
disputes. See FORR Final Rule, EP 755, slip op. at 3-4 (explaining that
the Board has recognized that the litigation costs required to bring
cases under the Board's existing rate reasonableness methodologies can
quickly exceed the value of a case involving a smaller dispute); 8-10
(explaining the need for a new procedure to resolve small rate disputes
in response to arguments from railroad interests that such a new
procedure is unnecessary). As discussed herein, and in FORR Final Rule,
the Board believes that both a new arbitration program focused on small
rate disputes and the FORR process would be likely to achieve the
Board's goal of increased access to potential rate relief, albeit
through different mechanisms. Additionally, the Board finds that the
arbitration program would further the rail transportation policy of 49
U.S.C. 10101 by facilitating the expeditious handling and resolution of
proceedings (49 U.S.C. 10101(15)), supporting fair and expeditious
regulatory decisions when regulation is required (49 U.S.C. 10101(2)),
and helping to maintain reasonable rates where there is an absence of
effective competition (49 U.S.C. 10101(6)).
Accordingly, both the arbitration program and the FORR process are
appropriate means for improving access to rate relief for shippers with
small disputes. Nonetheless, the Board has decided to pursue the
implementation of the arbitration program as its first step. As the
Board has said in this proceeding and others, it favors the resolution
of disputes through the use of mediation and arbitration procedures, in
lieu of formal Board proceedings, ``whenever possible.'' See
Arbitration NPRM, EP 765, slip op. at 8 (citing 49 CFR 1108.2(a) and
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)). In addition, the fact that Congress specifically directed the
Board to add rate disputes to the list of arbitrable matters and
increased the potential relief available in such cases to $25 million
demonstrates a congressional policy in favor of arbitration. By
adopting the final rule, the Board would have an arbitration process
that can be both successful in resolving small rate cases and that
parties have expressed a tentative willingness to use. The Board
concludes that these policy benefits make a small rate case arbitration
program the better approach from which to start. As proposed in
Arbitration NPRM, EP 765, slip op. at 11, 12, the Board will roll out
the program with an initial term of five years, along with a built-in
review--to be conducted after no more than three years--to allow for an
updated assessment of the program's effectiveness.
The Board has considered giving complainants the ability to choose
whether to challenge a rate using either arbitration or FORR, as most
of the shipper interests urge. However, the Board concludes that such a
structure is unlikely to lead to a successful launch of the arbitration
program. Participation in arbitration must be voluntary, see 49 U.S.C.
11708(a), and experience has demonstrated that carriers will not choose
to voluntarily arbitrate rate disputes without a significant incentive
to do so. See Arbitration NPRM, slip op. at 3 (noting that while three
carriers have opted into the Board's arbitration program, none have
done so for the purpose of arbitrating rate disputes). If the Board
permitted complainants to choose between arbitration and FORR at the
outset, it is unlikely a carrier would agree to participate in the
arbitration program at this time. Allowing carriers to be exempt from
challenges under FORR would provide, in the Board's view, a proper
incentive, while still creating a more accessible avenue of potential
relief to shippers with small rate disputes. Therefore, the Board will
allow Class I carriers the opportunity to decide whether they still
desire to be subject to the arbitration program, with the modifications
required by the Board, in exchange for being exempt from FORR
challenges. See infra Part I.C.1.b (explaining that Class I carriers
will have a 50-day window from the date of this decision to inform the
Board whether they intend to participate in the arbitration program).
However, as explained in Arbitration NPRM, the Board concludes the
arbitration program should only be implemented if all Class I carriers
agree to participate in the program. See infra Part I.C.1.a (explaining
the importance of Class I carriers being subject to the same rate
relief procedures to ensure fairness). The Board will therefore also
structure the new regulations so that the arbitration program can
become operable only if the Board publishes a notice in the Federal
Register confirming that all Class I carriers have agreed to
participate. As noted, participation for Class I carriers in the
arbitration program will begin with an initial term of five years, with
the Board conducting a programmatic review no later than three years
after start of the program. In response to comments, the Board will
provide clarity as to when the five-year period begins and how the
program may continue at the end of this five-year period.
The Board recognizes that it is possible that not all Class I
carriers will agree to voluntarily participate in the new arbitration
program, even with the incentive of an exemption from FORR. FORR will
therefore serve as an available avenue of rate relief in the event that
one or more of the carriers chooses not to participate in the
arbitration program at the initial phase or withdraws from the program
after it becomes operable. Regardless of which option the Class I
carriers choose--opting into arbitration or being immediately subject
to FORR--either process will provide shippers with smaller disputes a
new avenue of rate relief that is more accessible than the Board's
existing rate case processes.
2. Arguments That Arbitration Will Not Make Rate Relief More Accessible
One theme in the shipper interests' comments is that the
arbitration process is not more accessible than the existing rate case
processes and therefore should either not be adopted or be
significantly modified. (See Olin Comment 10; Coalition Ass'ns Comment
2, 6; Coalition Ass'ns Reply 5-10; IMA-NA Comment 19; Indorama Comment
19.) The Board finds these arguments unconvincing. Rather, the Board
expects that the arbitration process will provide significant benefits
over formal adjudication of rate disputes, especially
[[Page 705]]
where the amount in dispute is small. For the reasons described below,
under the arbitration process being adopted here, complainants should
be able to challenge rates more quickly than under the existing rate
processes and without incurring as much expense.
a. Time Savings From Arbitrating
The procedural schedule for a Three-Benchmark case is 240 days (or
eight months). See Simplified Standards for Rail Rate Cases (Simplified
Standards), EP 646 (Sub-No. 1), slip op. at 23 (STB served Sept. 5,
2007). Although the schedule for an arbitration would vary, the Board
estimates that the time from when an arbitration is initiated (by the
filing of the initial notice of intent to arbitrate) until the
arbitration panel issues its decision would be no more than 180 days
(or six months).\12\ That period would be less if the parties forgo the
initial mediation process, which, as discussed below, the Board will
allow a complainant to waive unilaterally. See infra Part III.A. In
addition, the Board disagrees with the assertion that an appeal to the
Board would be filed in all arbitrations. See infra Part I.B.3.
---------------------------------------------------------------------------
\12\ See infra App. B (estimated timeline of the arbitration
process).
---------------------------------------------------------------------------
b. Cost Savings From Arbitrating
The arbitration process should also create opportunities for
litigants to reduce litigation costs. First, there will be limits on
the amount of discovery permitted in arbitration, which will force
parties to use discovery requests only to obtain essential evidence,
which in turn should limit the number of discovery disputes and save
parties litigation costs. See RRTF Report 10 (stating that
``[d]iscovery disputes were viewed [by stakeholders] as greatly adding
to the cost of litigation''). Third, the discovery limits, compressed
procedural schedule (90 days unless extended), and any other procedural
restrictions imposed by the arbitration panel (limits on the number or
length of pleadings, or on the arguments that parties may address in
their pleadings) should collectively force parties in an arbitration to
present a more focused set of arguments. If a shipper believes that
there are several meritorious arguments as to why the rate is
unreasonably high, it may decide--because of the procedural
limitations--that it would be best to limit its case to only its one or
two strongest arguments. The procedural limitations will also force
parties, when making these arguments, to keep their presentations
concise. Fourth, the informal nature of the arbitration process should
reduce litigation costs. The Board expects that various communications
between the parties and the arbitration panel would be through less
formal communication, such as emails or phone calls, instead of formal
motions and written orders.
A key example of how the arbitration process could be less costly
than the existing rate review methodologies involves the ``other
relevant factors'' component of the Three-Benchmark methodology, in
which defendant carriers can argue that the maximum reasonable rate
should be higher or lower than the level derived using the Three-
Benchmark approach. The RRTF Report noted that shippers had indicated
that a concern with the Three-Benchmark methodology was the other
relevant factors part of the analysis. RRTF Report 49-51. Specifically,
the report stated that shippers ``confirmed that a potential
complainant, faced with the prospect of having to respond to an open-
ended, voluminous collection of arguments and evidence proposing `other
relevant factors'--including attorneys' and consultants' fees for
reviewing and responding to these arguments and evidence--would not
find the Three-Benchmark test to be `relatively simple and
inexpensive.' '' Id. at 51 (citing Simplified Standards, EP 646 (Sub-
No. 1), slip op. at 22). Accordingly, the RRTF proposed imposing page
limits on arguments regarding other relevant factors. Here, the
arbitration process should accomplish the same end. Specifically, the
procedural confines of the arbitration process (limited discovery,
short procedural schedule) will prevent arguments regarding other
relevant factors from becoming unwieldy. Additionally, depending on the
facts of the case, the arbitration panel could impose limits on the
scope of the arguments regarding other relevant factors if it finds
such arguments are unlikely to be meritorious.
Some of the shipper interests point out that parties will have to
pay for the cost of the arbitrators, (IMA-NA Comment 18; Indorama
Comment 18; AFPM Comment 12), which is an expense that does not exist
in formal cases. Nevertheless, the other cost savings that arbitration
will produce are intended to more than offset this added expense.
Unfortunately, it is not possible to make an actual comparison of costs
because there is no evidence in the record here, or any recent Board
proceedings, on the cost to litigate a Three-Benchmark case, and the
Board will not know the cost to arbitrate until cases are actually
arbitrated.\13\ However, it is clear that shippers have asserted that
the existing rate processes are cost-prohibitive and the Board finds
that an alternate approach with the potential to lower costs is worth
pursuing.
---------------------------------------------------------------------------
\13\ As noted below, the Board will conduct a programmatic
review of the arbitration process no later than three years after
the program becomes effective. See infra Part III.J. The Board will
modify the language of the regulation that requires the agency to
conduct this review to specifically explore the issue of cost
savings by seeking data from parties that have brought arbitrations.
See infra App. A (finalized 49 CFR 1108.32).
---------------------------------------------------------------------------
3. Arguments That Arbitration Will Not Be as Effective as FORR
Another theme in the shipper interests' comments is that
arbitration will not be as effective as FORR and, as a result, the
Board either should not adopt the arbitration program or,
alternatively, should eliminate the FORR exemption. (Olin Comment 2;
Coalition Ass'ns Comment 5.) The Board also finds these arguments
unpersuasive.
Despite the fact that FORR is a rate reasonableness adjudicatory
process and arbitration is an alternative dispute resolution process,
they share a number of key features. (See USDA Comment 2.) As in the
FORR process, shippers will have broad methodological flexibility in
the arbitration process to present new methodologies. The amount of
relief available in both processes will also be the same. See infra
Part III.H.
The arbitration process will also have a timeline for resolution
similar to FORR. The FORR process adopted today will take 149 day or
169 days (depending on whether the streamlined market dominance
approach is used), while the arbitration process will take
approximately 180 days (though often less) from initiation of the
process until the arbitration panel issues its decision. IMA-NA,
Indorama, and AFPM argue that the arbitration process will take longer
than FORR because arbitration decisions will almost always be appealed
to the Board, whereas FORR decisions would be appealed directly to a
court. (IMA-NA Comment 18; Indorama Comment 18; AFPM Comment 12.)
However, it is not at all certain that every arbitration will be
appealed to the Board, given the relatively small awards available
(compared to other rate reasonableness adjudicatory procedures), the
fact that appeals would not be confidential, and that there are limited
grounds on which parties can appeal. See 49 U.S.C. 11708(h).
IMA-NA, Indorama, and AFPM argue that the arbitration process could
be
[[Page 706]]
more expensive than a FORR case because the parties have to pay the
costs of the arbitrator, which they would not incur in a FORR case.
(IMA-NA Comment 18; Indorama Comment 18; AFPM Comment 12.) The fact
that parties would have to pay the arbitrators is indeed an added cost
that complainants in a FORR case would not incur. But both processes
are based on the same concept of creating a more streamlined, less
formal process for determining rate reasonableness. Moreover, given the
flexibility afforded to the arbitration panel to set arbitration-
specific procedures, the parties can request procedures that reduce
costs. Accordingly, the Board does not expect the costs between
arbitration and FORR to be significantly different.
In Part III, the Board explains why it is adopting each of the
arbitration procedures, including those that differ from FORR. In doing
so, the Board has taken the comments of the parties into account and
modified the regulatory text to develop an arbitration process that
aims to be fair and equitable to both complainants and carriers. For
example, as discussed below, see infra Part III.C.3.a, the Board has
determined that the limits on waybill access proposed in Arbitration
NPRM were too restrictive and has adjusted them accordingly. Given the
concern from the shipper interests that the arbitration program will
not be effective, the Board also commits to performing a programmatic
review no later than three years after the program becomes effective.
See infra Part III.J.
4. Arguments That Complainants' Will Lack the Ability To Choose Between
Processes
Some of the shipper interests and USDA oppose the FORR exemption
because they argue that complainants should have the ability to decide
whether to challenge rates using arbitration or FORR. (Olin Comment 13;
AFPM Comment 1-2; USDA Comment 3.) However, the Board addressed this
concern in Arbitration NPRM, stating that ``[c]reating 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.''
Arbitration NPRM, EP 765, slip op. at 14. Under 49 U.S.C. 11708,
arbitration is a voluntary process and, as such, the only way to obtain
participation from stakeholders is if the program offers them benefits.
Here, Joint Carriers and BNSF have indicated that they may be willing
to participate if the Board were to exempt them from having their rates
challenged under FORR. The Board concludes that such a trade-off is
appropriate at this time given the Board's finding that the arbitration
process here will improve access to rate relief and advance the
agency's long-standing effort to encourage parties to use alternative
dispute resolution processes when possible. Indeed, the Board is also
making other trade-offs to incentivize participation from shippers and
rejecting other features that carriers seek.
5. Arguments That Railroads Will Participate in Arbitration Without a
FORR Exemption
Coalition Associations assert that carriers will have an incentive
to participate in the arbitration program even without the FORR
exemption citing, in particular, the fact that arbitration decisions
would be non-precedential. (Coalition Ass'ns Reply 10-11.) But parties
have not used the Board's existing voluntary arbitration program,
notwithstanding the fact that decisions under that program would also
be non-precedential. See 49 U.S.C. 11708(d)(5); 49 CFR 1108.10.
Moreover, the carriers that first proposed the arbitration program made
clear that their goal was for the program to serve as an alternative to
being subject to FORR:
The railroads discussed the reasons why they believed that
voluntary arbitration would be attractive for both railroads and
customers and a better alternative than other proposals that have
been suggested for determining the maximum lawful rate in small rate
cases. The railroads suggested that as an incentive to encourage a
Class I railroad to opt into such a voluntary arbitration program,
the Board could consider a waiver from other rail rate review
methodologies, such as FORR or the revenue adequacy constraint.
CN, CSXT, NSR, & UP Ex Parte Meeting Mem. 2, July 10, 2020 (filing ID
300866) Final Offer Rate Rev., EP 755. Many of the shipper interests
themselves have stated that Petitioners' motivation for pursuing
arbitration was to secure a FORR exemption. (See Olin Comment 3
(``[F]ive railroads developed and proposed the EP 765 Arbitration
process in July of 2020 as a shield from the possibility that the STB
might adopt FORR as a rate-evaluation tool''); Coalition Ass'ns Comment
6 (``The whole point of this scheme was to cut shippers off from FORR
by forcing them to arbitrate under the Petitioners' preferred
process''); NGFA Comment 7 (``[T]he primary driver for the Petitioners'
proposing to modify the arbitration regulations in the first place was
to obtain an exemption from having the reasonableness of their rates
reviewed under FORR rules and standards.'').)
In any event, the fact that arbitration decisions would be non-
precedential would not by itself address Joint Carriers' concern that
such decisions could be used in future rate negotiations, as
complainants could still use these decisions in future rate
negotiations. (See Joint Carriers Reply 14-15 (noting that IMA-NA and
Indorama have indicated that they wish these non-precedential decisions
to be public for that very reason).)
The Board finds that implementation of NGFA's suggestion that the
FORR exemption last only until the agency conducts the programmatic
review is unnecessary. As noted, the Board will conduct a programmatic
review no later than three years after the program becomes effective,
at which point the Board will consider whether the program should
continue and, if so, whether any modifications should be made,
including whether the FORR exemption should remain intact. Barring
unforeseen difficulties, that would be the appropriate time for the
Board to consider the effectiveness of the FORR exemption and other
program features.
6. Other Arguments Opposing Adoption of the Arbitration Program and
FORR Exemption
The shipper interests raise arguments disputing the Board's
authority to establish this arbitration program and the propriety of
such a program. The Board addresses these arguments below.
a. Participation in the Arbitration Program Would Be Voluntary
Olin argues the proposal in Arbitration NPRM is not ``voluntary''
within the meaning of 49 U.S.C. 11708(a) because FORR would no longer
be an available option and the Board's other rate challenge processes
have been shown to be infeasible. Olin states that shippers therefore
would have to choose to use the new arbitration program (which it
claims favors carriers) or pay the rate it is being charged. (Olin
Comment 11-12; see also IMA-NA Comment 7, Indorama Comment 7 (arguing
that large non-coal shippers and all small shippers have nowhere to
turn if they believe their rates are unreasonable).) Similarly,
Coalition Associations claim that the Board's proposal is tantamount to
a ``de facto arbitration mandate,'' which the Board does not have
authority to implement. (Coalition Ass'ns Comment 3-5; see also
[[Page 707]]
AFPM Comment 4.) Specifically, Coalition Associations argue that the
FORR exemption ``effectively mandates'' that shippers with small rate
disputes use arbitration because there are no other formal rate review
processes accessible for shippers with small disputes. (Coalition
Ass'ns Comment 4-5.) They claim that Congress confirmed that the Board
cannot mandate arbitration of rate disputes when it passed the STB
Reauthorization Act of 2015, which required the Board to establish a
``voluntary'' arbitration process. (Id. at 4.) Moreover, Coalition
Associations argue that the Board has itself long recognized that it
cannot require arbitration of rate disputes. (Id.) Coalition
Associations also argue that it is difficult to imagine that Congress
contemplated this scenario when it directed the Board to establish a
``voluntary'' arbitration program. (Id. at 6.)
Joint Carriers dispute assertions that the FORR exemption is
tantamount to a de facto arbitration mandate. They argue that the Board
specifically rejected this argument in Arbitration NPRM when it found
that incentivizing carrier participation by offering them an exemption
from FORR would provide shippers with an important means to access
potential rate relief, i.e., the new arbitration program. (Joint
Carriers Reply 5 (citing Arbitration NPRM, EP 765, slip op. at 13-14).)
They also argue that shippers' ability to use the arbitration program
would still be voluntary. (Id. at 8.) AAR also disputes Olin's
assertion that the new arbitration program would be compulsory, as
shippers would be able to use the arbitration program or file rate
cases under the existing methodologies. (AAR Reply 11.)
The Board disagrees with assertions that the arbitration process
(including an exemption from FORR for participating carriers) would not
be voluntary or that it creates a mandate to arbitrate. Although the
Board has raised concerns about the efficiency and practical
accessibility of its existing rate case processes for instances when
the amount in dispute is small relative to the cost of bringing a case,
FORR NPRM, EP 755, slip op. at 3; Market Dominance Streamlined
Approach, EP 756, slip op. at 4 (STB served Sept. 12, 2019), the Board
has not held that those concerns make the processes fatally defective,
nor has the Board disavowed the economic reasoning of those processes.
Those existing processes will continue to be available after enactment
of this arbitration program and may be used by shippers with smaller
rate disputes. Indeed, the Board recently adopted regulations
establishing a streamlined approach for pleading market dominance in
rate reasonableness proceedings with the intent that it would be used
in the Board's existing rate case methodologies. See Market Dominance
Streamlined Approach, EP 756, slip op. at 33-34 (STB served Aug. 3,
2020) (finding that use of the streamlined approach should be permitted
in rate cases brought under any methodology).
Accordingly, a shipper's options would not be limited to bringing
an arbitration or doing nothing.\14\ As has always been the case,
shippers will have a number of options and will need to decide which
option best suits their needs based on the size of the dispute,
available resources, and many other factors. By implementing a new
arbitration program (with FORR serving as one of various alternatives
if carriers choose not to participate), the Board is attempting to
build upon its efforts to make rate relief more accessible. The Board's
final rule here is thus consistent with the statutory requirement that
arbitration be voluntary.
---------------------------------------------------------------------------
\14\ In fact, a complaint was recently filed by a shipper
seeking to challenge a carrier's rate under both the Full Stand-
Alone Cost (Full-SAC) and revenue adequacy constraints. Omaha Pub.
Power Dist. v. Union Pac. R.R., Docket No. NOR 42173.
---------------------------------------------------------------------------
b. The Arbitration Program Is Not Based on Improper ``Deal-Making.''
Olin regards the Board's statement that a FORR exemption would
incentivize railroads to participate in the arbitration program as
``inconsistent with the interests of small shippers, and contrary to
the STB's statutory duties.'' (Olin Comment 13.) It further states that
``[t]he Board should not evaluate potential regulations as though it
were engaged in deal-making'' and that ``[r]ailroads should not be
permitted to excuse themselves from Board regulation because a select
group of railroads would prefer to be `regulated' in a preferred manner
of their own choosing.'' (Id. at 13, 14.) Olin argues that the Board
should not need the consent of the railroad industry to allow for
adoption of a regulation that Congress has required. (Id. at 13.)
AAR disputes Olin's contention that it is improper for the Board to
try to incentivize parties to resolve their disputes through
arbitration. Because the Board cannot require parties to arbitrate, AAR
argues that it is entirely proper for the Board to identify ways of
encouraging parties to volunteer for arbitration. AAR argues that this
is not ``deal-making'' or ``trading away the FORR process,'' as Olin
describes it. (AAR Reply 11.)
Olin's characterization of the agency's approach is off the mark.
Because 49 U.S.C. 11708(a) requires that any arbitration process
offered by the Board be voluntary, any such process by its nature will
always involve creating incentives for stakeholders to participate. The
Board modified the arbitration program in 2013 to try to encourage
greater use of the program. See Assessment of Mediation & Arb. Procs.,
EP 699, slip op. at 3 (STB served May 13, 2013) (``The changes to the
Board's arbitration rules are intended to . . . encourage greater use
of arbitration to resolve disputes before the Board by simplifying the
process, identifying specific types of disputes eligible for a new
arbitration program, and establishing clear limits on the amounts in
controversy.''). Congress then modified the statutory arbitration
requirements to try to expand the use of the arbitration process. See
S. Rep. No. 114-52, at 7 (2015) (``To increase the efficiency of
dispute resolution, S. 808 would expand existing work at the STB to
encourage and provide voluntary arbitration processes.''). These
efforts to make greater use of arbitration sought to create better
incentives for stakeholder participation, just as the Board is doing
here. So far, however, those efforts have not had the intended effect,
as the current arbitration program has still gone unused for rate
disputes. Accordingly, it is entirely appropriate for the Board to
consider other means to incentivize stakeholder participation,
including by granting carriers a FORR exemption.
c. The Board Will Oversee the Arbitration Process
Olin further states that even though it does not oppose arbitration
per se, the Board ``exists as an expert governmental agency chiefly in
order to resolve disputes between railroads and shippers in a public,
on-the-record manner.'' (Olin Comment 10.) But the establishment of
this arbitration procedure is not inconsistent with the Board's role in
resolving rate disputes through the adjudicatory process. Congress has
given the Board statutory authority to resolve disputes using both
adjudication and arbitration. As noted above, the Board favors use of
alternative dispute resolution processes wherever possible and has had
an arbitration process available to stakeholders since 1997.
Additionally, as the Board stated in Arbitration NPRM, EP 765, slip op.
at 10-11, any arbitration requirements must be consistent with 49
U.S.C. 11708. The
[[Page 708]]
Board finds that there is no conflict between that statute and the
final rule being adopted here.
d. Arbitration Is Not Overly Broad
Olin argues that the language of the Board's proposed FORR
exemption is unnecessarily broad. (Olin Comment 15-16.) Olin states
that the carriers want a FORR exemption because they are concerned that
the standard for appellate review of arbitration decisions by the Board
would be limited, even in cases where the arbitration decision is based
on a new methodology such as FORR. Olin argues that the more
appropriate remedy would be to restrict the use of FORR solely in the
context of an arbitration. (Id.) AAR objects to Olin's suggestion that
the Board should replace the FORR exemption with a narrower prohibition
on the use of final-offer processes in the arbitration program. (AAR
Reply 12.)
Olin's argument (and its proposal to prohibit arbitrators from
using final-offer style procedures) is based on a misunderstanding of
the purpose of the FORR exemption. In Arbitration NPRM, the Board
explained that the aim of the FORR exemption was to incentivize
railroads to participate. Arbitration NPRM, EP 765, slip op. at 14
(``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.''). The FORR exemption was not proposed
as a means to address railroad concerns about the narrow standard of
appellate review. The Board addresses carrier concerns regarding the
narrow standard for appeals as applied to the use of new methodologies
in Part III.G, below.
e. Arbitration Is Not Intended To Avoid FORR Appeals
NGFA notes the railroads have not pledged to forgo an appeal of the
decision adopting FORR if they are exempt from FORR rules. (NGFA
Comment 3 n.3.) However, the purpose of the FORR exemption was not to
foreclose an appeal of the FORR decision. In fact, as noted in
Arbitration NPRM, the Board acknowledges that an appeal of the FORR
decision is likely, regardless of whatever features are contained in
the arbitration process. The purpose of the FORR exemption is instead
to incentivize railroad participation in the arbitration program.
f. Carriers Must Arbitrate if They Choose To Participate
AFPM also argues that the RRTF advocated for mandatory arbitration,
which this rule is not proposing, and that the Board should therefore
adopt FORR instead of the arbitration program. (AFPM Comment 7.)
However, as explained in this decision, if Class I carriers agree to
participate in the new arbitration program, they are committing to do
so for a five-year term with the right to withdraw only if there is a
material change in law. As such, a Class I carrier that has opted into
the new program could not refuse to participate in an arbitration if
one is initiated against it.
C. Other Arbitration Program Fundamentals
1. Participation
a. Carrier Participation
In Arbitration NPRM, the Board indicated that an important factor
in its decision whether to adopt a new arbitration program would be a
commitment from all of the Class I carriers to agree to participate in
the arbitration program for a five-year term. Arbitration NPRM, slip
op. at 9. The Board stated that an initial commitment from all Class I
carriers would promote the goal that the shippers they serve have
similar access to rate review procedures and certainty of carrier
engagement.\15\ (Id.) No parties commented on this aspect of the
Board's proposal.
---------------------------------------------------------------------------
\15\ The Board noted that rate cases filed to date indicated
that complainants' rate concerns relate primarily to Class I
carriers. Arbitration NPRM, EP 765, slip op. at 9 n.15 (citing Final
Offer Rate Rev., EP 755, slip op. at 16-17 (STB served Sept. 12,
2019)).
---------------------------------------------------------------------------
Providing shippers with access to the same avenues of rate relief
against Class I carriers is important, particularly at the start of the
arbitration program. If the Board were to adopt both processes but one
turned out not to function as efficiently as the Board anticipates,
shippers that are required to challenge rates under that process could
perceive that they will be placed at a market disadvantage. The Board
has concluded that fairness is best achieved by ensuring that shippers
served by Class I carriers have access to the same avenues of rate
relief as the new arbitration program begins. Although narrow
circumstances may result in individual carriers withdrawing from the
program after its start, requiring uniformity--at least at the
beginning--provides the best chance of achieving this fairness. The
final rule will therefore include the requirement that all Class I
carriers agree to participate for the arbitration program to become
operable.\16\
---------------------------------------------------------------------------
\16\ Specifically, within the new regulations will be a
requirement that the Board issue a written notice commencing the
arbitration program. See App. A (49 CFR 1108.22(b)). The regulation
will further provide that the Board may only issue this commencement
notice if it has received opt-in notices from all of the Class I
carriers. Id.
---------------------------------------------------------------------------
As for Class II and III carriers, in Arbitration NPRM, the Board
proposed that these carriers could participate on a case-by-case basis.
Arbitration NPRM, EP 765, slip op. at 12.\17\ The Board also proposed
that for rate challenges involving multicarrier shipments, all carriers
participating in the movement must have opted into the arbitration
process. Id. at 12-13. For multicarrier movements involving only Class
I carriers, both carriers will have agreed, at least initially, given
that the arbitration program will only become operative if all Class I
carriers opt into the program. For multicarrier shipments involving a
Class II or Class III carrier, those smaller carriers could agree to
participate on a case-by-case basis (though, as noted, there is nothing
that would prohibit such a carrier from also agreeing to participate
for the same five-year term as the Class I carriers).\18\ No commenter
addressed the issues of Class II and III carrier or multicarrier
participation. Accordingly, the Board will include these provisions
without modification as part of the final rule.
---------------------------------------------------------------------------
\17\ However, the Board also noted that there was nothing in the
proposed rule that would prohibit Class II and Class III carriers
from also voluntarily participating for the same five-year term as
Class I carriers would be required to do. Arbitration NPRM, EP 765,
slip op. at 9 n.13.
\18\ A Class II or Class III carrier may participate in a
movement with a Class I carrier but not necessarily be or remain a
defendant in rate disputes. See e.g., Total Petrochemicals USA, Inc.
v. CSXT, NOR 42121 (STB served Jan. 21, 2011).
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b. Carrier Opt-In Procedures
The Board proposed in Arbitration NPRM that the Class I carriers
that decide to participate for a five-year term must file an opt-in
notice under Docket No. EP 765, which would be posted on the STB's
website. Arbitration NPRM, EP 765, slip op. at 13. Arbitration NPRM
also included regulatory text setting the proposed procedural
requirements for filing the opt-in notice. Id., App. A (proposed Sec.
1108.23(a)(1)). In particular, the Board proposed regulatory text
stating that a carrier could file its opt-in notice ``at any time and
[the notice] shall be effective upon receipt by the Board or at another
time specified in the notice.'' Id., App. A (proposed Sec.
1108.23(a)(1)).
Joint Carriers state they are concerned that the Board suggested in
Arbitration
[[Page 709]]
NPRM that the Board would not ``enact'' the arbitration proposal absent
a commitment from all Class I carriers to agree to participate for a
five-year term. They argue that requiring a commitment from Class I
carriers prior to knowing what the final rule will entail would be
inappropriate and contrary to basic principles of fairness. (Joint
Carriers Comment 30-31.)
The Board reiterates that it will not require carriers to commit to
participate in the arbitration program before knowing the content of
the final rule being adopted. See Joint Petition for Rulemaking to
Establish a Voluntary Arbitration Program for Small Rate Disputes, EP
765 et al., slip op. at 4 (STB served Dec. 29, 2021). To avoid
confusion on this issue, the Board will amend the regulatory text to
require each Class I carrier intending to participate to submit to the
Board an opt-in notice within 20 days after the effective date of this
decision. This will allow carriers a 50-day window to review the final
rule and decide whether they want to voluntarily participate. As
explained in the prior section, all Class I carriers must agree to
participate for the arbitration program to become operable.
The Board notes that, as a result of this change, Class I carriers
will have only a limited opportunity--beginning immediately after this
decision is issued--to decide whether to participate in the new
arbitration program. In the original petition for rulemaking, most of
the Class I carriers stated that an arbitration process would provide a
better means of addressing concerns about the availability of rate
reasonableness review for smaller rate cases than would FORR. (Pet. 1-
2; CP Letter 1.) As noted above, the Board agrees that alternative
dispute resolution is generally preferrable to formal adjudication.
Accordingly, the purpose of the 50-day window is to give Class I
carriers the option to decide if they will voluntarily participate in
the adopted arbitration program as an alternative to FORR. The duration
of this window gives the carriers sufficient time to decide but also
ensures that there is certainty for all stakeholders within a
reasonable amount of time as to whether and when the new arbitration
program will commence.
Lastly, the Board notes that it will also adopt, without
modification, the procedures for Class II and III carriers to
participate on case-by-case basis as proposed in Arbitration NPRM.
Arbitration NPRM, EP 765, App. A (proposed Sec. 1108.23(a)(4)).\19\
---------------------------------------------------------------------------
\19\ Because this notice would be submitted by the shipper to
the Class I carrier and the Board's Office of Public Assistance,
Governmental Affairs, and Compliance (OPAGAC), a complainant will
need to coordinate with the Class II or III carrier and determine if
it wishes to participate in the arbitration.
---------------------------------------------------------------------------
c. Shipper Participation and Opt-In Procedures
As proposed in Arbitration NPRM, the final rule will allow shippers
to participate on a case-by-case basis. A shipper's participation is
indicated by its submission of a copy of a written notice of its intent
to arbitrate to the Class I carrier and OPAGAC. See infra Part III.A
for additional explanation of these procedures.
2. Five-Year Term
In Arbitration NPRM, the Board proposed that the arbitration
program would last for a period of five years. The five-year period was
based on a pre-NPRM pledge from the Petitioners to participate in the
arbitration program for five years if the Board adopted their proposed
arbitration program without changes. Arbitration NPRM, EP 765, slip op.
at 9. As noted above, the Board has proposed modifications to the
Petitioners' proposal to ensure that the program adequately addressed
the Board's policy goals and because certain aspects were not feasible.
Id. at 9-10. However, the Board retained the five-year period. The
Board also proposed that it would conduct a programmatic review of the
arbitration program ``upon the completion of a reasonable number of
arbitration proceedings such that the Board can conduct a comprehensive
assessment, though not later than three years after start of the
program,'' at which point the Board would decide whether the program
should continue or be terminated or modified. Arbitration NPRM, EP 765,
App. A (proposed Sec. 1108.32).
Joint Carriers claim that there is an inconsistency in Arbitration
NPRM regarding whether the five-year term begins on the effective date
of the program or the date on which the carrier files its opt-in
notice. They suggest this be clarified so that the five-year term
begins on the date that the carrier opts in. (Joint Carriers Comment
29-30.) They also urge the Board to clarify what happens after the
five-year term expires; specifically, that carriers remain in the
arbitration program on an at-will basis (meaning that the carriers are
in the program but can withdraw at any time for any reason). (Id. at
30.) They suggest that the Board can consider whether another opt-in
notice to continue the program beyond five years is needed or
appropriate when it conducts the programmatic review. (Id.)
NGFA notes that it appears that the FORR exemption would last
beyond the initial five-year participation period (unless terminated by
the Board). They argue that this could unfairly result in a scenario
where the Board terminates the arbitration program after a period of
years but allows carriers to continue being exempt from FORR
challenges. (NGFA Comment 5.)
AFPM supports the five-year term, provided it is paired with
shippers having the option to challenge a rate using FORR. It states
that the voluntary nature of the arbitration program and the lack of
certainty beyond the initial five-year term reinforces the need for
FORR. (AFPM Comment 5.)
The Board will keep the initial participation period for the
arbitration program at five years. However, given the confusion about
when the five-year period begins and what happens at the end of this
period, the Board will provide more specificity in the regulatory text.
See App. A (49 CFR 1108.22(b), (c)). The regulations will now provide
that the arbitration program formally commences upon a notice issued by
the Board, and that such notice will only be issued if the agency
receives opt-in notices from all Class I carriers. The five-year term
of the arbitration program will then run from the date on which the
commencement notice is issued. However, if the notice is not issued,
the regulations being adopted here will not take effect and the
arbitration program will therefore not begin. The FORR exemption will
only commence upon the issuance of the Board's notice and will last
only as long as the carrier participates in the arbitration program
(i.e., until the Board terminates the program, the five-year term ends
and the program is not renewed, or a carrier withdraws due to a
material change in the law).
In Arbitration NPRM, the Board did not elaborate on what happens at
the end of the carriers' initial five-year period, other than to note
that it would conduct a review of the proposed program no later than
three years after start of the program, at which point, the Board may
determine that the arbitration program will continue or that the
arbitration program should be terminated or modified. Arbitration NPRM,
EP 765, slip op. at 51. Based on the comments, the Board has decided
that leaving this question unaddressed would create too much
uncertainty for stakeholders. Moreover, if the program is successful,
having such regulations
[[Page 710]]
already in place for the post-five-year period may avoid the need for
the Board to initiate a new proceeding. Accordingly, the Board will
amend the proposed regulatory text to provide for renewal of the
arbitration program at the end of the initial five-year participation
period, and for every five years after that. For renewal to occur and
the arbitration program to remain in effect, the Board will require all
existing Class I carriers to opt into the arbitration program for
another five-year term. This requirement will apply even if one or more
of the carriers have withdrawn during the initial five-year
participation period due to a material change in the law (as discussed
below). If all carriers once again choose to participate, as indicated
by the filing of opt-in notices, and the arbitration program is
renewed, the Class I carriers will remain exempt from FORR.
3. Withdrawal
a. Withdrawal Will Be Permitted If There Is a Material Change in Law
The Board indicated that the carriers' ability to withdraw from the
program should be narrow, as participation from all of the Class I
carriers would be important to the success of the arbitration program.
Arbitration NPRM, EP 765, slip op. at 11. Accordingly, the Board
proposed that the only basis upon which a carrier could withdraw from
the arbitration program would be if there is a material change in the
law regarding rate reasonableness methodologies, subject to objection
that would then be ruled on by the Board. Id. at 16-17. The Board also
noted that its decision on whether to include a withdrawal right in the
arbitration program would be influenced by whether there is a readily
accessible small rate case review process as a backstop in the event a
carrier is no longer participating in the arbitration program. The
Board specifically sought comment on this issue. Id. at 12.
No commenter specifically addressed whether carriers' right to
withdraw should be contingent on the existence of another readily
accessible rate review process to serve as a backstop. In any event,
the issue is now moot because the Board is adopting FORR, which would
serve as an additional regulatory backstop for similar types of small
rate disputes. Accordingly, the Board will allow participating carriers
to withdraw from the program if there is a material change in the law.
However, the final rule will also specify that the termination or
modification of any part of the FORR process, should it occur, will not
be considered a change in law for which carriers can opt out. In
Arbitration NPRM, the Board noted that it was proposing that adoption
of FORR would not be considered a change in law. Arbitration NPRM, EP
765, slip op. at 16. Because the Board today is also adopting FORR,
that proposed provision is now moot. However, the carriers have
indicated that FORR will likely be the subject of legal challenges. One
benefit of the new arbitration program is that it will provide
complainants with more certainty that they will have a more readily
accessible rate relief process available at this time. That benefit
would be defeated if Class I carriers could use the outcome of a legal
challenge to FORR as a basis to withdraw from the arbitration program.
To be clear, by agreeing to participate in the arbitration program,
Class I carriers' commitment to arbitrate for a period of five years
will be enforced, regardless of any potential changes to (or
elimination of) FORR based on appellate litigation or any other reason.
b. Withdrawal Period
Joint Carriers argue in their comment that the time proposed by the
Board for carriers to indicate whether they intend to withdraw--10 days
after an event that qualifies as a basis for withdrawal--is too short.
They argue that, contrary to the Board's assertion in Arbitration NPRM,
a decision to withdraw would not be made quickly. (Joint Carriers
Comment 26.) They note there is no way of knowing how complex or
lengthy such a material change could be and, therefore, a rushed
decision might cause parties to withdraw who might otherwise have
stayed in the program. (Id.) Accordingly, Joint Carriers request that
the period be extended to 30 days. (Id. at 27.) No other parties
commented on this aspect of Arbitration NPRM.
The Board understands Joint Carriers' concern that 10 days may be
too short a time-period to properly assess the impact of a material
change in law. However, carriers should generally be aware of the
potential for a change in law before such changes ultimately occur.
Changes would either be through a Board decision, a court decision, or
passage of a new law by Congress. These are actions that stakeholders
as sophisticated and well-resourced as Class I carriers would have
knowledge of in a timely manner. Additionally, the status of pending
arbitrations will depend on whether carriers agree to remain in the
program, so it is also important that this period of uncertainty not
last longer than necessary. Accordingly, the Board will extend the
period for carriers to decide whether to withdraw to 20 days.
c. Rulemakings That Constitute a Change in Law
AFPM supports allowing railroads to withdraw due to a material
change in the law, but it urges the Board to clarify what would
constitute a material change. Specifically, it argues that the Board
should identify which open rulemakings may be considered a material
change. (AFPM Comment 6.) Under the language of the final rule, the
right to withdraw would be triggered if there is a material change to
the arbitration program itself, if there is a material change to the
Board's existing rate reasonableness methodologies, or if a new rate
reasonableness methodology is created. See App. A (49 CFR 1108.23(c).)
\20\ For existing rate case methodologies, a change is more likely to
be considered material if it involves a core component of an existing
methodology; by contrast, a mere technical or procedural change to the
methodology is less likely to be considered a material change.
Additionally, a new procedure will not be considered a ``new rate
reasonableness methodology'' unless it newly defines one or more
criteria by which a rate can be shown to be unreasonable. For example,
the Board currently has pending proceedings in Market Dominance
Streamlined Approach, Docket No. EP 756; Report: Alternatives to URCS,
Docket No. EP 771; and Review of Commodity, Boxcar, and TOFC/COFC
Exemptions, Docket No. EP 704 (Sub-No. 1). Although these proceedings
may affect certain ancillary aspects of a rate challenge, they do not
define the criteria for rate reasonableness determinations and
therefore do not involve the creation of new rate reasonableness
methodologies. They also do not revise a core component of an existing
methodology. Accordingly, any action the Board takes in these
proceedings would not be considered a material change. The Board will
not speculate on whether other proceedings would give rise to material
changes, given that there are
[[Page 711]]
many different directions the Board may take in those cases.
---------------------------------------------------------------------------
\20\ Joint Carriers note that there is a drafting error in the
proposed regulations (specifically, 49 CFR 1108.23(c)(1)), which
states that a change in law results only from Board actions, despite
the fact that the Board stated in the body of Arbitration NPRM that
changes could result from Congressional or judicial action. (Joint
Carriers Comment 26 (citing Arbitration NPRM, EP 765, slip op. at 16
n.31). The Board agrees that this language should be modified to
broaden the scope of actions that can constitute a material change
in law. By removing reference to material changes made by ``the
Board,'' the language now allows for material changes as a result of
Board, Congressional, or judicial action.
---------------------------------------------------------------------------
Impact of Carrier Withdrawal on the Arbitration Program
As noted, the final rule being adopted here will require that all
Class I carriers participate in the arbitration program as a
prerequisite to the program becoming effective. However, the Board has
decided that it will allow the arbitration program to continue if one
or more carriers choose to withdraw from the program due to a material
change in the law--though carriers that withdraw will lose their
exemption from FORR. The Board has stated that ensuring shippers have
similar access to rate review procedures is important, particularly at
the outset of the program. See supra Part I.C.1.a. However, the
likelihood that there is a material change in the law during the
initial five-year period is relatively low. In any event, once the
arbitration program has been established and the Board and stakeholders
have some familiarity with the process, the Board will be more likely
to know if the program is working as intended. Accordingly, its
concerns about fairness in access to rate relief notwithstanding, the
Board will allow the arbitration program to continue if one or more
Class I carriers decides to withdraw based on a change in law. If there
is a material change in the law that causes most of the Class I
carriers to withdraw from the program, the Board can always reassess
whether continuation of the program is still warranted.
Part II--Arbitration Case Limits
A. One Case per Shipper Limit
In Arbitration NPRM, the Board proposed that complainants be
permitted to initiate only one arbitration per railroad at a time.
Arbitration NPRM, EP 765, slip op. at 19. The Board provided several
reasons for this proposed limit. First, it would prevent complainants
from improperly disaggregating related rate challenges into smaller,
individual claims. Second, it would ensure that no one complainant
pursued so many arbitrations as to delay other complainants from
pursuing arbitrations under the 25-case/12-month limit (discussed in
the following section). Third, it would allow the Board and
stakeholders to develop familiarity with the arbitration process
gradually. The Board noted that complainants could bring arbitrations
against multiple carriers simultaneously, that they could challenge
multiple rates within a single arbitration (subject to the relief cap),
and that the Board's existing formal rate reasonableness procedures
remain available for those complainants that want to bring multiple
rate challenges.
Coalition Associations argue this limit should be removed because
it will foreclose shippers with multiple unreasonable rates from timely
access to rate review. They note that shippers negotiate rates for
multiple lanes simultaneously and that a one-case limit will force
complainants to either aggregate claims (thus obtaining less relief on
a per-lane basis) or pay higher rates that cannot be challenged.
(Coalition Ass'ns Comments 11-12.) Coalition Associations also note
that shippers that delay bringing additional rate challenges under the
arbitration process will have to continue paying the higher rate during
the delay. (Id. at 12.)
They contend that the one-case limit also creates an incentive for
carriers to seek higher rate increases in negotiations when they know
the complainant is engaged in a pending arbitration. (Id.) These
concerns, they argue, are more insidious than the Board's concern about
disaggregation of rate claims. (Id. at 13.) Coalition Associations also
dispute many of the other reasons stated by the Board as to why the
one-case limit is needed. (Id. at 13-14.)
IMA-NA and Indorama state that they also do not support the one-
case-per-complainant limit. They state that this limit would constrain
shippers' ability to challenge rates, given their view that the Board's
other existing rate case procedures are ineffective. (IMA-NA Comment
17-18; Indorama Comment 17-18; see also Coalition Ass'ns Comment 14.)
IMA-NA and Indorama note that there is no such limitation in the
proposed FORR process. (IMA-NA Comment 17; Indorama Comment 17.) AFPM
argues that the one-case limit would be yet another reason to not
exempt railroads who participate in the voluntary program from FORR.
(AFPM Comment 7.) It states that shippers should be able to bring
multiple arbitrations so long as the lines at issue do not share
facilities. (Id.) Like IMA-NA and Indorama, AFPM also argues that the
Board's reasoning that such complainants have other avenues available
to them is counter to the Board's finding that the existing mechanisms
have proven unworkable. (Id.) AFPM proposes that if the Board adopts
the one-case limit, it should allow complainants to bring subsequent
rate challenges using FORR. (Id.)
Joint Carriers and AAR argue that the one-case-per-complainant
limit is needed to prevent improper disaggregation of cases and, as the
Board recognized, preventing a single shipper from using all the
capacity under the 25-case/12-month limit. (Joint Carriers Reply 16-17;
AAR Reply 13-14.) AAR states that several of the shipper interests
admit in their comments that they want to bring multiple arbitrations
concurrently against the same carrier, which could lead to improper
disaggregation of cases, and so the one-case limit is necessary. (AAR
Reply 13-14.)
While the one-case-per-shipper limit would prevent improper
disaggregation of cases that should be brought as a single case into a
number of smaller arbitrations, the Board agrees with the shipper
interests that the delays it could create are equally, if not more,
problematic. As Coalition Associations note, if a shipper challenging a
rate through arbitration is charged additional rates that it believes
are unreasonable, the shipper could not use arbitration until the
initial arbitration is resolved. Once a carrier is aware of that
situation, the carrier could be more aggressive in rate negotiations or
even consider imposing a short-term rate increase while the arbitration
is pending, especially if the carrier believes that the shipper is
unlikely to use one of the available rate methodologies. Accordingly,
the Board will remove the one-case per shipper limit from the final
rule.
In Arbitration NPRM, the Board perceived that the one-case per
shipper limit was needed to ensure that more shippers have the
opportunity to participate in the arbitration program given the 25-
case/12-month cumulative case limit the Board was also imposing.
Arbitration NPRM, EP 765, slip op. at 19. As noted in the following
section, the Board is modifying that cumulative case limit so that it
is now set at 25 cases simultaneously. As a result of this
modification, there is less need for the one-case limit to guard
against a shipper or small group of shippers from dominating the
arbitration program to the exclusion of other shippers. The Board also
briefly noted in Arbitration NPRM that the one-case limit would allow
the Board and stakeholders to develop familiarity with the arbitration
process gradually. Arbitration NPRM, EP 765, slip op. at 19. However,
the importance of that goal is outweighed by the problems that the
shipper interests have explained would be created by the one-case
limit.
In addition, the purpose of this rulemaking is to make rate relief
more accessible to shippers with small disputes. As explained above,
carriers that participate in the arbitration program will be exempt
from FORR challenges during the period of
[[Page 712]]
participation. If the Board were to also impose the one-case limit,
shippers' improved access to rate relief would be limited to just one
case at a time. The Board noted in Arbitration NPRM that the shippers
most likely to use the arbitration process would be those that are less
likely to have multiple rates they wish to challenge. In retrospect,
however, the one-case limit could put those shippers that do have
multiple rates that they believe are unreasonable in an unfair
position. If a shipper has two rates from the same carrier that are
both creating economic hardship, the shipper should not be forced to
choose between arbitrating the one dispute but using a less accessible
formal rate case process for the other (particularly if the amount in
dispute is disproportionate to the cost of bringing a formal case).
However, the Board agrees that, without the one-case limit, there
needs to be some safeguard against the possibility of complainants
improperly disaggregating claims. Accordingly, as part of the final
rule, the Board will mandate that a complainant may not bring separate
arbitrations for traffic with the same origin-destination or shipments
where facilities are shared. The Board proposed this alternative in
Arbitration NPRM. Arbitration NPRM, EP 765, slip op. at 20. Aside from
AFPM, which supported the idea, (AFPM Comment 7), no other party
addressed it. The Board finds that it would serve as a sufficient means
to prevent improper disaggregation. Under this restriction, an
arbitration complainant could challenge a rate for traffic moving on
one part of the defendant carrier's system and also challenge a rate
from an entirely different part of the carrier's system. This ``shared
facilities'' standard serves as a rough proxy of how a complainant
would challenge separate rates in formal cases. Specifically, it is
less likely that a complainant would challenge two shipments that do
not share facilities as part of single rate case. Accordingly, the
Board will impose this restriction in the final rule.
B. 25-Case/12-Month Case Limit
At the urging of Petitioners, the Board limited the number of
arbitrations that could be brought against an individual rail carrier
to 25 cases within a 12-month time period. Arbitration NPRM, EP 765,
slip op. at 18. However, rather than allowing carriers to withdraw once
this limit was reached (as Petitioners had proposed), the Board
proposed that any excess arbitrations would be postponed until such
time as the carrier is once again below the 25-cases within a 12-month
time period limit. Id.\21\ The Board reasoned that 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. Id.
---------------------------------------------------------------------------
\21\ Additionally, the Board proposed that cases would only
count toward the 25-case/12-month limit if the parties actually
reach the arbitration phase of the process (i.e., after the Joint
Notice has been filed). Arbitration NPRM, EP 765, slip op. at 18.
The Board also proposed that carriers would be responsible for
monitoring the number of arbitrations that are brought and for
informing OPAGAC if the limit was reached, at which point OPAGAC
would confirm and notify shippers whose arbitrations must be
postponed. Id.
---------------------------------------------------------------------------
Coalition Associations oppose the 25-case/12-month limit. They
argue that, by requiring shippers to queue up to arbitrate against the
carrier on a first-come/first-serve basis, shippers would incur
unpredictable and costly delays. (Coalition Ass'ns Comment 15.)
Coalition Associations also argue that if the arbitration process is
confidential, shippers would not know if an arbitration would be
postponed when they initiate the process, nor would they know how long
they would have to wait until the arbitration can begin. Moreover, they
argue that the shipper will have to continue paying the unreasonable
rate during the delay. (Id.) They state that, in contrast, a carrier
will know when a case would be delayed, which in turn will give the
carrier an advantage in negotiations for other rates. (Id. at 15-16.)
Coalition Associations argue that the Board's concern that carriers
will be inundated with arbitrations does not justify this prejudicial
impact on shippers. Additionally, they argue that the Board cites no
evidence that a high number of cases is even likely, particularly since
shippers have little incentive to arbitrate borderline cases. (Id. at
16.)
AFPM states that it supports the 25-case/12-month limit, but it
suggests the Board closely monitor this cap to see if it needs to be
adjusted in the future. (AFPM Comment 6.)
Joint Carriers oppose removing the 25-case/12-month limit. They
argue that they do not have unlimited resources and so they will not
voluntarily put themselves in a position where they could potentially
be overwhelmed by too many arbitrations at one time. (Joint Carriers
Reply 16.) They argue that this case limit is reasonable given that
there are thousands of rail customers. (Id.)
As with the one-case limit, the Board agrees that the shipper
interests have raised valid concerns about the delays that could be
created under the 25-case/12-month limit. For example, if 25
arbitrations were brought within the first month after the program
becomes effective and all the arbitrations were concluded after four
months, a potential complainant whose arbitration exceeds the limit
would need to wait an additional eight months before its case could
proceed--even though the carrier would not be handling any pending
arbitrations during this time. However, the new arbitration program
entails a process that will be new and untested; as such, the Board
finds that it is reasonable to limit the number of arbitrations to
which rail carriers are subject until the Board and stakeholders have a
practical understanding of how well the program works.
To balance both the carriers' and shippers' concerns, the Board
will adopt a 25-case limit, but it will remove the 12-month component.
Without the 12-month component, Class I carriers participating in the
arbitration program will be subject to no more than 25 arbitration
cases simultaneously. The Board finds that this modification should
address the shipper interests' concern about the delays that the 25-
case/12-month limit would create because it is unlikely that an
arbitration will ever have to be placed in abeyance under the revised
limit. And, even if a case has to be placed in abeyance, the delay
should be minimal--the complaint would only have to wait until one of
the 25 pending arbitrations is completed before its case could
proceed.\22\ Although not at the level they wish, the limit of no more
than 25 arbitrations simultaneous should provide the carriers some
protection against an excessive number of cases.
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\22\ The Board will add language to the regulation that
specifies that an arbitration is considered final for purposes of
the 25-cases-simultaneously limit when the arbitration panel issues
its arbitration decision, or when an arbitration is dismissed or
withdrawn, including due to settlement. In other words, cases that
are on appeal to the Board or to a court will not be counted toward
the case limit. This is consistent with language that the Board
included for the one-case limit in Arbitration NPRM. Arbitration
NPRM, EP 765, slip op. at 19 n.36 & App. A (proposed Sec.
1108.24(c)). In addition, the Board will remove the definition of
``Pending arbitrations'' from the list of definitions in 49 1108.21,
as it will avoid any potential confusion on this issue and is
otherwise not necessary.
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C. Joint Carriers' Proposed Simultaneous Case Limit
In the petition for rulemaking, Petitioners proposed allowing
carriers to withdraw from the arbitration program if they were subject
to 10 simultaneous arbitrations. The Board, however, did not propose
this as a feature of the program in Arbitration NPRM. The Board found
such an occurrence
[[Page 713]]
unlikely and that the other case limits would be sufficient protection
against carriers being inundated with cases. Arbitration NPRM, EP 765,
slip op. at 18.
Joint Carriers urge the Board to reconsider including this limit in
the final rule. They argue that the one-case-per-shipper and 25-cases/
12-month limits do not sufficiently protect carriers from ``being
overwhelmed by a high number of arbitrations, all with expedited
schedules.'' (Joint Carriers Comment 27.) However, Petitioners now
propose that the limit result in postponement of cases, rather than
triggering a withdrawal right. (Id. at 27-28.)
In response, Coalition Associations argue that postponing cases
above a 10-simultaneous-case limit would place shippers at a
disadvantage. For one, it would increase the costs to shippers whose
cases are postponed, particularly since the shipper would be paying the
challenged rate while waiting for its arbitration to proceed.
(Coalition Ass'ns Reply 24.) They argue that this delay would put
pressure on shippers to settle claims, due to the fact that the
railroad's conduct has led to multiple claims against it. (Id.)
Coalition Associations also argue that this limitation is not necessary
to encourage railroads to participate, as the arbitration program would
offer other benefits to railroads. (Id.) Lastly, they note that there
is no corresponding cap on FORR cases. (Id.)
The Board appreciates Joint Carriers' concern about having
sufficient resources to handle simultaneous arbitrations. However,
there is no limit on the number of rate cases that can be brought
against a carrier, so a carrier could just as easily be subject to the
same number of rate cases as arbitrations. The Board acknowledges that,
because the new arbitration process should be less time-consuming and
less costly than a formal rate case, shippers may bring more challenges
through the arbitration process than they otherwise would through
formal cases. But that would indicate that the arbitration process is
providing shippers with better access to potential rate relief, which
is the goal of this proceeding. In other words, if the reason carriers
today are subject to very few rate cases is that the formal rate case
processes are too costly to be worth pursuing, that is not a
justification for protecting them from a somewhat larger number of
challenges under the arbitration program as well. Finally, in the event
that there are a greater number of arbitrations than the Board
anticipates that create concerns about the fairness of the program, it
will stand ready to take appropriate action.
The Board acknowledges that in Arbitration NPRM it stated that the
existence of the one-case-per-carrier and the 25-cases/12-month limit
made the need for the 10-simultaneous-case limit unnecessary, but here,
the Board is discarding one of those limits and loosening the other.
Arbitration NPRM, EP 765, slip op. at 18. However, the limit of no more
than 25 arbitrations simultaneously should provide the carriers some
protection against an excessive number of cases.
Part III--Arbitration Program Procedural Requirements
A. Pre-Arbitration Procedures and Timelines
As proposed by the Board, the arbitration process under the new
program would begin with the shipper submitting a copy of a written
notice of its intent to arbitrate (Initial Notice) to the rail carrier
and OPAGAC (though OPAGAC would not be permitted to share this
information outside of that office). See Arbitration NPRM, EP 765, slip
op. at 20-21 (setting forth the proposed requirements for the Initial
Notice). The parties would then have the option to mediate if both
parties agreed to do so, but mediation would not be required if one or
both parties choose not to mediate. The mediation period would be for
30 days and be arranged by the parties; the Board would not appoint a
mediator or otherwise oversee the mediation. See id. at 21-22. If
mediation is unsuccessful, or if the parties choose not to mediate,
they would jointly submit a second notice (Joint Notice) to OPAGAC and
the Office of Economics (OE) (submission to OE would allow that office
to begin compiling the Waybill data that is automatically provided to
the complainant). See id. at 22-23 (setting forth the proposed
requirements for the Joint Notice). The only comments on these aspects
of the Board's proposal pertained to mediation. Because no commenters
addressed the Initial Notice and Joint Notice requirements, they will
be included in the final rule.
NGFA and AFPM support the Board's proposed mediation provisions,
with AFPM stating that it will allow parties to avoid unnecessary
delays for disputes that are clearly not likely to be resolved through
mediation. (NGFA Comment 8-9; AFPM Comment 8.) However, Joint Carriers
argue that the Board should require brief mediation before the actual
arbitration phase, unless both parties mutually consent to forgo it.
(Joint Carriers Comment 28.) They argue that the Board's concern that
mandatory mediation would discourage shippers from using the
arbitration program is unlikely and, in any event, is outweighed by the
minimal cost and time of mediation. (Id. at 29.) BNSF also argues that
mediation should be mandatory before the actual arbitration phrase. It
states that, in its experience, most successful arbitrations are
resolved prior to the arbitration and the Board's focus on the timing
of mediation unduly minimizes the potential for settlement that
mediation would bring. (BNSF Comment 3-4.) AAR also urges the Board to
build in a mandatory mediation period, arguing it would be consistent
with the Board's stated preference for private-sector solutions. (AAR
Comment 6.)
Coalition Associations take issue with Joint Carriers' insistence
on mandatory mediation. They argue that it would increase costs on
shippers and lengthen the procedural schedule by 25%, during which time
the shipper would be subject to the challenged rate. (Coalition Ass'ns
Reply 22-23.) Coalition Associations also argue that allowing parties
to forgo mediation upon mutual consent is not helpful because it causes
delay and, therefore, it is unlikely a railroad would ever consent to
opt out. (Id. at 23.) Lastly, Coalition Associations note that the
American Arbitration Association allows parties to opt out of mediation
unilaterally and that JAMS \23\ does not require mediation as a
precondition to arbitration. (Id.)
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\23\ According to the JAMS website, it ``is the world's largest
private alternative dispute resolution (ADR) provider.'' See
<a href="http://www.jamsadr.com/about/">www.jamsadr.com/about/</a>.
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The Board will deny the requests from rail carriers to make
mediation mandatory. Although the Board requires parties to mediate
under its other rate case processes, the goal of arbitration is to
create a process that is particularly expeditious and less costly than
existing processes. Despite carriers' assertion, the time and expense
of engaging in mediation is not insignificant (particularly since it
would be the parties, not the Board, providing the mediator). By not
requiring mediation as part of the arbitration process, the Board will
give parties the option to decide whether they want to mediate before
arbitrating their rate dispute.
The Board recognizes that, although it is not requiring mediation
here, it is requiring it for FORR cases. See FORR Final Rule, EP 755,
slip op. at 25. While mediation can be a useful exercise, there is a
fair degree of similarity between the mediation and arbitration
processes. Accordingly, the Board concludes it is reasonable to allow
parties to elect to
[[Page 714]]
bypass mediation here and proceed directly to arbitration.
The Board notes that if a carrier genuinely believes that mediation
would be beneficial, it is free to speak directly with the complainant
and encourage the complainant to participate in mediation.\24\
Coalition Associations briefly note that if a complainant is forced to
participate in mediation, it ``increases the financial stakes for
shippers without a corresponding increase for railroads.'' (Coalition
Ass'ns Reply 23.) Carriers are free to agree to extend the relief
period for the length of time that the parties are engaged in mediation
to incentivize a shipper to participate in mediation (though not longer
than the statutory maximum of five years).
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\24\ The Board is modifying the language proposed in Arbitration
NPRM relating to when mediation is initiated. In particular, the
Board is deleting a sentence that stated that mediation would be
``initiated'' by the submission of the Initial Notice, as the Board
intends that parties should discuss the possibility of mediation
after the Initial Notice is submitted. If there is agreement to
mediate, the regulations provide that the parties must schedule
mediation promptly and in good faith.
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B. Arbitration Panel Selection
In Arbitration NPRM, the Board proposed adopting the Petitioners'
idea of a panel made up of two arbitrators--one appointed by each
party--and a lead arbitrator chosen by the parties jointly. Arbitration
NPRM, EP 765, slip op. at 24. For the party-appointed arbitrators, the
Board proposed allowing parties to select arbitrators ``without
limitation,'' including individuals not on the agency's roster. The
Board noted, however, that arbitrators must perform their duties with
``diligence, good faith, and in a manner consistent with the
requirements of impartiality and independence'' and proposed allowing
each side to object to the other side's selection, with for-cause
objections that would be ruled on by an ALJ. Id. at 24-25. No party
commented on this aspect of the Board's proposal. Accordingly, it will
be included in the final rule.
As for the lead arbitrator, the Board proposed that the two party-
appointed arbitrators would make a selection from a joint list provided
by the parties but, if the arbitrators are unable to agree, that they
shall select from the Board's roster using the alternate-strike method
(as set forth in Sec. 1108.6(c)). The Board did not propose requiring
the lead arbitrator to meet any qualification requirements (as is
required for individuals wanting to be on the Board's arbitration
roster), but it did request parties to comment on whether there should
be such a requirement.
Both Joint Carriers and AAR object to requiring the party-appointed
arbitrators to select the lead arbitrator from the Board's roster when
there is disagreement. Joint Carriers argue that the roster is too
small a pool, while AAR argues that selecting from the roster is
problematic because it favors whichever side is more represented on the
roster. (Joint Carriers Comment 20; AAR Comment 7.) Accordingly, Joint
Carriers and AAR propose that an ALJ select the lead arbitrator when
there is disagreement. (Joint Carriers Comment 20; AAR Comment 7.)
Joint Carriers specifically propose the ALJ select from a joint list
submitted by the parties, in which each party would select three
arbitrators for a total of six arbitrators,\25\ and that the ALJ should
be guided by the qualification requirement of 49 CFR 1108.6(b). (Joint
Carriers Comment 20-21.) \26\ They note that relying on an ALJ would
also be consistent with the process proposed by the Board for resolving
disputes over party-appointed arbitrators. (Id. at 20.)
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\25\ Joint Carriers state they would also accept a proposal that
the list include more than six arbitrators, but the Board should not
require fewer than six. (Joint Carriers Comment 20-21 n.41.)
\26\ Under 49 CFR 1108.6(b), persons on the Board-maintained
roster must be individuals ``with rail transportation, economic
regulation, professional or business experience, including
agriculture, in the private sector,'' and ``must have training in
dispute resolution and/or experience in arbitration or other forms
of dispute resolution.''
---------------------------------------------------------------------------
Coalition Associations oppose the idea of having an ALJ select the
lead arbitrator from a list generated by the parties. They propose that
the parties generate a list, but instead of having the ALJ select the
lead arbitrator, the parties use the alternating-strike method. They
argue this would allow parties to have more control over the selection
of the lead arbitrator, as opposed to an ALJ who would likely be
unfamiliar with the individuals on the list. (Coalition Ass'ns Reply
26-27.) Finally, AFPM argues that the lead arbitrator should meet the
49 CFR 1108.6 qualifications, particularly since the panel will have to
make a determination on market dominance. (AFPM Comment 8.)
The Board will require that any individuals on the list meet the
qualification requirements of 49 CFR 1108.6(b). In particular, the
Board will require the lead arbitrator to be a person ``with rail
transportation, economic regulation, professional or business
experience, including agriculture, in the private sector,'' and that
has ``training in dispute resolution and/or experience in arbitration
or other forms of dispute resolution.'' 49 CFR 1108.6(b). Such a
requirement will ensure that the lead arbitrator will be able to carry
out his or her responsibilities for handling evidentiary matters and
that the panel will have addressed the appropriate legal criteria in
reaching its decision.\27\
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\27\ Joint Carriers oppose the qualification requirement of 49
CFR 1108.6(b) applying to party-appointed arbitrators. (Joint
Carriers Comment 21 n.42.) The Board confirms that the qualification
requirement will not apply to party-appointed arbitrators. Compare
49 CFR 1108.6(b) (requiring that, for the existing arbitration
program, all individuals on the arbitration panel must meet the
qualification requirement).
---------------------------------------------------------------------------
Commenters all oppose selecting from the Board-maintained roster in
situations where parties cannot agree on a lead arbitrator.
Accordingly, the Board will modify the final rule to instead allow the
parties to develop a joint list. To develop the joint list, the Board
will require each side to include the names of three individuals who
meet the qualification requirement of 49 CFR 1108.6(b). Both sides will
then be permitted to strike the names of two individuals proposed by
the opposing side. The parties will then contact the Director of
OPAGAC, who shall select from the two remaining names using a random
selection process. The Board finds using this method of selecting the
lead arbitrator would be easier and faster than relying on an ALJ or
other substantive decisionmaker. While this approach has certain
advantages, the Board acknowledges that selection approaches that do
not rely on the roster, which commenters uniformly opposed, also have
certain built-in incentives that may be disadvantageous.
C. Record-Building Procedure
1. Procedural Schedule
Under 49 U.S.C. 11708(e)(2), ``[t]he evidentiary process of the
voluntary and binding arbitration process shall be completed not later
than 90 days after the date on which the arbitration process is
initiated unless--(A) a party requests an extension; and (B) the
arbitrator or panel of arbitrators, as applicable, grants such
extension request.'' The Board proposed that the arbitration program
would have a 90-day evidentiary phase composed of a 45-day discovery
sub-phase and a 45-day sub-phase for submission of pleadings or
evidence (beginning from the formal commencement of the arbitration
phase). Arbitration NPRM, EP 765, slip op. at 27-28. Under the Board's
proposal, the arbitration panel could extend the discovery sub-phase
upon request (even if only sought by one party), but such extensions
would not automatically result in a corresponding extension of the
``submissions'' sub-phase (unless the parties agreed to extend the
submissions
[[Page 715]]
sub-phase as well). The Board stated in a footnote that its
``expectation [is] 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.'' Arbitration NPRM, EP 765,
slip op. at 28 n.44. However, that extraordinary circumstances standard
was not included in the regulatory text. As for how evidence would be
submitted, the Board proposed that the arbitration panel would set
forth the schedule and format for the presentation of evidence,
allowing for principles of due process. (Id.)
AAR proposes that there should be a full 45-day submission sub-
phase, even if the discovery period is extended. (AAR Comment 7.) It
argues that a party is equipped to weigh the benefit of seeking
additional discovery against the risk that the proceeding will be
extended. (Id. at 8.) AAR states that, because the pleadings are
informed by discovery, the Board should not diminish the timeframe for
submitting pleadings because of the need for additional discovery.
(Id.)
Coalition Associations argue that the arbitration proposal has a
longer evidentiary phase than the FORR SNPRM proposal (90 days versus
59 days). They argue that this longer schedule will increase the costs
for parties in arbitration because it will give parties more time to
prepare evidence, resulting in higher attorneys' fees and other costs.
(Coalition Ass'ns Reply 10.) Coalition Associations also dispute the
assertion by Joint Carriers that arbitration will be less formal and
subject to ``hardball advocacy,'' and therefore less costly. (Id.) AFPM
states that it does not object to the proposed procedural schedule.
(AFPM Comment 10.)
Upon further consideration, the Board will modify the final rule so
that it is left to the arbitration panel's discretion whether to extend
the submission sub-phase upon an extension of the discovery sub-phase
and, if so, for how long. The arbitration panel will be in the best
position to weigh whether an extension of the discovery period warrants
an extension of the submission sub-phase, based on input from the
parties.\28\ Such a rule is also consistent with 49 U.S.C. 11708(e)(2).
---------------------------------------------------------------------------
\28\ The arbitration panel need not extend the submission sub-
phase for the same length of time as the extension of the discovery
sub-phase. For example, if the arbitration panel extends discovery
by 15 days, it may decide that an extension of the submission sub-
phase of only 10 days is sufficient.
---------------------------------------------------------------------------
Coalition Associations' argument that the longer schedule in
arbitration relative to FORR will increase costs for litigants is
overstated. As described above, arbitration is an inherently efficient
process. There is no certain mechanism to determine whether a
particular arbitration would be more expensive than a particular
proceeding under FORR. And, as discussed above, the regulations will
allow parties to request, and the arbitration panel to adopt,
procedures that are more efficient or less costly. In addition, the
discovery limits--discussed in the following section--will require
parties to streamline their litigation strategy.
2. Discovery Limits
The Board proposed that each side be allowed 20 written document
requests, five interrogatories, and no depositions. However, the Board
invited comment on whether the limits should be raised in cases where
the non-streamlined market dominance approach is used. The Board also
proposed that the lead arbitrator be responsible for managing
discovery. Arbitration NPRM, EP 765, slip op. 28-29.
IMA-NA, Indorama, and Coalition Associations do not support limits
on discovery. They argue that, because railroads generally control most
of the information needed to bring a case, these limitations will have
a disproportionately adverse effect on complainants. They argue that
this, in turn, could deter shippers from using the arbitration program,
particularly if they feel a case requires more information than it can
obtain under these limited discovery procedures. They also note that
there are no such discovery limitations in FORR. (IMA-NA Comment 18;
Indorama Comment 18; Coalition Ass'ns Reply 9.) AFPM does not object to
the discovery limits, though it notes that the proposed limits may need
to be higher for cases in which the non-streamlined market dominance
approach is used. (AFPM Comment 10.)
The discovery limits are a key feature of the arbitration program
because they will ensure that parties streamline their requests and
that the process does not become overly costly or time-consuming.
Although the shipper interests argue that shippers require more
discovery in rate cases than do carriers, they do not claim that the
limited discovery proposed by the Board would be insufficient for
purposes of obtaining the evidence needed to present a case to the
arbitration panel. However, in response to the concern from the shipper
interests that the discovery limits may be too restrictive, the Board
will modify the final rule to allow parties to make requests for
additional interrogatories and documents, which the lead arbitrator can
grant for exceptional circumstances. This will allow parties to obtain
additional discovery in cases where it is warranted. In addition, the
limits proposed in Arbitration NPRM did not account for the additional
discovery that may be needed when a complainant uses a non-streamlined
market dominance analysis. See Arbitration NPRM, EP 765, slip op. at
28. Accordingly, the Board will modify the final rule so that each
party receives an additional three interrogatories and three document
requests if a defendant carrier does not concede market dominance and
the complainant elects to use a non-streamlined market dominance
analysis.
3. Waybill Data
As part of the proposed small rate case arbitration program, the
Board proposed that each party automatically receive the confidential
Waybill data of the defendant carrier for the preceding four years, as
in Three-Benchmark cases. Arbitration NPRM, EP 765, slip op. at 29. In
addition, the Board proposed that the released Waybill data be limited
to movements at the same 5-digit STCC as the commodity at issue, but
that complainants could request Waybill data beyond four years, beyond
the 5-digit STCC, or for non-defendant carriers, by filing a request
with the Director of OE under 49 CFR 1244.9(b)(4). Id. at 29-31.\29\
The Board reasoned that these limits would balance the needs of parties
in an arbitration against the goal of maintaining the confidentiality
of the Waybill Sample. (Id. at 30.)
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\29\ The Board also proposed that the Director of OE provide the
data to the parties within seven days, that both parties and
arbitrators must sign a confidentiality agreement before any Waybill
data is released, and that the Waybill data cannot be obtained
through discovery. Arbitration NPRM, EP 765, slip op. at 29-31.
---------------------------------------------------------------------------
Coalition Associations argue the scope of Waybill data to be
released should be expanded to include all rail carriers and
commodities, as ``commodities can have comparable transportation
characteristics at higher STCC levels and transportation
characteristics can be similar across railroads.'' (Coalition Ass'ns
Comment 18.) They also claim that the Board permits four years of
Waybill data in Three-Benchmark cases without restricting the data to
specific commodities. (Id. at 17.) Coalition Associations also note
that the Board proposed no carrier or commodity
[[Page 716]]
restrictions on access to Waybill data in FORR and that there is no
reason that Waybill access in arbitration should be more limited than
it is for FORR. (Id.) Finally, they also raise a number of concerns
about the process by which parties would have to seek additional
Waybill data from the Director of OE. (Id. at 18-19.)
Joint Carriers oppose expanded access to Waybill data beyond what
was proposed in Arbitration NPRM. They note that the process set forth
in 49 CFR 1244.9(b)(4), under which complainants can still obtain
access to additional data, is straightforward and such requests are
typically granted promptly. (Joint Carriers Reply 18.) They further
argue that the proposed limits are consistent with precedent and the
highly confidential nature of the Waybill Sample. (Id. at 19.) Lastly,
Joint Carriers argue that Coalition Associations are incorrect when
they say that the FORR proposal gives complainants access to the
Waybill Sample without restrictions, as the cases cited by the Board in
FORR SNPRM limit Waybill data to that of the defendant carriers. (Id.)
a. Commodities
The Board will modify the final rule to allow complainants to have
access to the defendant carrier's Waybill data for all movements
without restriction on commodity type. The agency's practice in Three-
Benchmark cases has been to provide complainants with data for all
commodities.\30\ The Waybill data is provided to complainants so that
they can select those movements from the data set that they believe
create the most appropriate comparison group, but also so they can
verify the Board's RSAM and R/VC<INF>></INF><INF>180</INF>
calculations. See Waybill Data Released in Three-Benchmark Rail Rate
Proceedings, Docket No. EP 646 (Sub-No. 3), slip op. at 9 n.20 (STB
served Mar. 12, 2012); Simplified Standards for Rail Rate Cases
(Simplified Standards), EP 646 (Sub-No. 1), slip op. at 79 (STB served
Sept. 5, 2007). Accordingly, upon further consideration, the Board sees
no reason that complainants in the arbitration process should be more
restricted than in Three-Benchmark cases, particularly since
complainants in arbitrations may choose to perform similar types of
comparison analyses. This would also align with the procedures adopted
in FORR. See FORR SNPRM, EP 755, slip op. at 37.\31\
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\30\ In the original notice of proposed rulemaking adopting the
Three-Benchmark test, the Board stated that ``[u]nder our proposal
here, once we find that a complainant is eligible to use the Three-
Benchmark method, we would release to lawyers and consultants who
have signed the necessary confidentiality agreement all movements in
the most recent Waybill Sample that have the same 2-digit STCC code
as the issue movement and an R/VC ratio above 180%.'' Simplified
Standards for Rail Rate Cases, EP 646 (Sub-No. 1), slip op. at 32-33
(STB served July 28, 2006). However, in adopting the final rule in
that proceeding, the Board did not mention this limitation or
indicate that it was being adopted. Simplified Standards for Rail
Rate Cases, EP 646 (Sub-No. 1), slip op. at 78-80 (STB served Sept.
5, 2007). In Waybill Data Released in Three-Benchmark Rail Rate
Proceedings, Docket No. EP 646 (Sub-No. 3) (STB served Mar. 12,
2012), the Board, pursuant to a court remand, again considered its
rules for release of Waybill data in Three-Benchmark cases but,
again, there was no mention of this limitation on the scope of the
Waybill data.
\31\ In FORR SNPRM, the Board also stated that waybill access
(subject to appropriate protective orders) would include the full
sample, including unmasked revenue, as is allowed in Three-Benchmark
cases. FORR SNPRM, slip op. at 37. In Arbitration NPRM, the Board's
proposed regulation also allowed for release of unmasked Waybill
data. That provision will be included as part of the final rule
here.
---------------------------------------------------------------------------
For the same reason, the Board will also amend the regulatory text
so that the Waybill data provided to complainants is not limited only
to movements with revenue to variable cost (R/VC) ratio above 180%.\32\
---------------------------------------------------------------------------
\32\ Although the Board takes no position on whether an
arbitrator decision may rely on a methodology that utilizes
movements below 180% R/VC, providing the data for such movements
allows arbitration parties to verify the Board's RSAM and R/VC>180
calculations.
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Non-Defendant Carriers
The Board will not expand the automatic Waybill data release
requirements to include non-defendant carriers. Coalition Associations
argue that access to other railroads could be needed in some rate
comparison analyses. In Arbitration NPRM, the Board acknowledged that
there could indeed be instances where such data is needed, but if so,
parties could request such data from the Director of OE. The Board
proposed amending its regulations at 49 CFR 1244.9(b)(4) to allow for
such requests in arbitration proceedings. Allowing the Director to
review such requests on an individual, case-by-case basis will provide
a way for the Board to ensure that only confidential Waybill data of
other carriers that is relevant to the arbitration is released.
The Board will also clarify that a defendant carrier's outside
attorneys and consultants should be given access to any non-defendant
carrier Waybill data that is provided to the complainant. Doing so is
necessary to avoid creating informational asymmetry. Accordingly, if
the Director grants a complainant's request for access to non-defendant
carrier data, the Director will inform the defendant carrier so that
the carrier's outside attorneys and consultants can obtain the same
data, pursuant to the required confidentiality agreement and
undertakings.
b. Waybill Requests
Coalition Associations argue that the process of requesting
additional data is itself problematic. Under the proposal in
Arbitration NPRM, a party seeking more Waybill data would need to have
their law firm or consultant file a request that meets the requirements
of 49 CFR 1244.9(b)(4), specifically, that a party:
<bullet> Demonstrate 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'' in a pending
arbitration; and
<bullet> Include a request that meets the requirements of 49
CFR1244.9(e), which states that applicants must provide ``(i) A
complete and detailed explanation of the purpose for which the
requested data are needed[;] (ii) A description of the specific waybill
data or fields actually required (including pertinent geographic
areas)[; and] (iii) A detailed justification as to why the specified
waybill data are needed.''
Coalition Associations argue that this process would require the
complainant to litigate the merits of its methodology before it can
even develop and present evidence based on that methodology; that there
is no guarantee that the Director will release the data; that there are
no clear standards for granting its release; that the Director's
decisions are given a high standard of deference; and that the process
could take a week or longer if there is an appeal to the Board, making
arbitration more costly and time-consuming. (Coalition Ass'ns Comment
18-19.)
Coalition Associations' arguments are misplaced. The revised text
of Sec. 1244.9(b)(4) being adopted here sets forth clear requirements
for seeking the release of Waybill data in arbitrations (and other STB
proceedings): a complainant needs to demonstrate that there is
reasonable need for the data relating to the methodology that it
intends to use in a formal case or an arbitration and the Waybill
Sample is the only source of this data. Thus, contrary to Coalition
Associations' assertion, the Director would not be prejudging the
complainant's methodology, but instead, merely assessing whether the
data being sought is relevant to that methodology and whether the data
is the only source of the information. Complainants in arbitration
matters would be similarly situated to other complainants that seek
confidential Waybill data in Board
[[Page 717]]
proceedings without automatic disclosure.
The Board also notes that--in contrast to ``other user'' requests
under 49 1244.9(c)--under 49 CFR 1244.9(b)(4), which will be the
process for requesting Waybill data for arbitrations, there are no
notice-and-objection procedures. Accordingly, the Board does not expect
that there would be adversarial litigation regarding the scope of an
arbitration complainant's initial waybill request.
Appeals of the Director's orders may be brought to the Board
pursuant to 49 CFR 1115.1.\33\ As specified in 49 CFR 1115.1(c), the
party appealing the Director's ruling will have 10 days to file the
appeal and other parties will have 10 days to file responses. The Board
will add language to the regulatory text of the arbitration program to
make this clear.\34\ In addition, the Board will include language that
pauses the arbitration process until the Board has issued its decision
ruling on the appeal.
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\33\ Under this regulation, parties may appeal decisions of
employees acting under authority delegated to them pursuant to 49
CFR 1011.6. The Director's authority to grant or deny access to
Waybill data is set forth in 49 CFR 1011.6(e).
\34\ In adjudications before the agency, if the party appealing
the Director's decision wishes for the appeal to be heard prior to
the final decision in the case, it would have to meet the criteria
for an interlocutory appeal under 49 CFR 1115.9. See Finch Paper
LLC--Pet. for Decl. Order, FD 35981, slip op. at 5 (STB served Jan.
11, 2017). However, under the regulations being implemented here,
the Director's decision on waybill access would be handled
separately from the arbitration process. Accordingly, the Board will
consider the Director's decision to be immediately appealable to the
Board. See 49 CFR 1115.1(c). For that reason, such requests should
be submitted as filings with a ``WB'' docket prefix.
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As discussed below, see infra Part III.I.4, the Board finds that
the Director's decision on the Waybill data request, as well as the
Board's decision on any appeal of the Director's decision, will not be
confidential. As such, requests for Waybill data will result in the
disclosure of the existence of the arbitration and the identity of the
participating parties, thus creating an exception to the Board's
requirement that the arbitration process remain confidential. The Board
specifically highlighted this problem in Arbitration NPRM and invited
parties to comment on whether there were alternate means for preserving
confidentiality. No party addressed this issue, and the Board has not
identified any workable alternative.
4. Admissible Evidence
As proposed in Arbitration NPRM, EP 765, slip op. at 32,
arbitration decisions will be deemed non-precedential and therefore
will be inadmissible in other arbitrations.
D. Market Dominance
In Arbitration NPRM, the Board proposed allowing the arbitration
panel to rule on the issue of market dominance as part of the
arbitration process. Arbitration NPRM, EP 765, slip op. at 35. The
Board's proposal was based on a modified interpretation of 49 U.S.C.
11708(c)(1)(C). Previously, in Revisions to Arbitration Procedures,
Docket No. EP 730, the agency had interpreted Sec. 11708(c)(1)(C) as
requiring the Board to decide whether there was market dominance (or,
alternatively, that the parties concede market dominance) before
proceeding to arbitration. See Revisions to Arb. Procs., EP 730, slip
op. at 6-7 (STB served Sept. 30, 2016), corrected (STB served Oct. 11,
2016); see also Revisions to Arb. Procs., EP 730, slip op. at 2-3 (STB
served May 12, 2016). But after re-examining the text of that statute,
as well as 49 U.S.C. 10707 (which is referenced in Sec.
11708(c)(1)(C)), the Board concluded that the statute could be read to
allow the arbitration panel to rule on market dominance (though the
Board proposed also continuing to allow the carrier to concede market
dominance or for the parties to jointly request that the Board make the
determination).
In addition, the Board proposed that complainants in a small rate
case arbitration could attempt to establish market dominance using
either the streamlined \35\ or non-streamlined approach. Arbitration
NPRM, EP 765, slip op. at 36. Finally, the Board proposed that
arbitrators be prohibited from considering evidence on product and
geographic competition and the limit price test as part of the market
dominance analysis. Id.
---------------------------------------------------------------------------
\35\ See Mkt. Dominance Streamlined Approach, EP 756 (STB served
Aug. 3, 2020) (adopting an approach that allows complainants to make
a prima facie showing of market dominance based on an established
set of factors).
---------------------------------------------------------------------------
NGFA supports the ability to demonstrate market dominance using the
streamlined or traditional approach, as well as the prohibitions on
product and geographic competition and the limit price test. (NGFA
Comment 8-9.) AFPM also supports allowing the arbitration panel to
decide market dominance, but only if the lead arbitrator meets the
qualification requirements of 49 CFR 1108.6. It argues that such a
determination may be too complex for an arbitrator that does not have
these qualifications. (AFPM Comment 11.) \36\
---------------------------------------------------------------------------
\36\ As noted above, the Board is in fact adopting a
qualification requirement for the lead arbitrator. See supra Part
III.B.
---------------------------------------------------------------------------
BNSF argues that the Board should allow consideration of product
and geographic competition as part of the market dominance inquiry.
(BNSF Comment 4.) It argues there is a ``significant asymmetry'' in
allowing shippers to pursue novel rate methodologies yet refusing to
allow carriers to present evidence of product and geographic
competition and that the new arbitration program could be an
``incubator'' for more efficient ways to present evidence of product
and geographic competition. (Id. at 4-5.) BNSF states that any concerns
about evidentiary sprawl would be mitigated by the various procedural
constraints (i.e., discovery limits, time frames). (Id. at 5.) BNSF
proposes, alternatively, that the Board allow product and geographic
competition in cases where only the traditional market dominance
approach is used. (Id.)
Coalition Associations oppose BNSF's request to allow carriers to
present evidence of product and geographic competition as part of the
market dominance inquiry. They note that the Board has previously
excluded such evidence because it places a substantial burden on the
agency by having to address materials outside its area of expertise.
(Coalition Ass'ns Reply 25.) They also argue that BNSF has failed to
explain how parties could address these complex matters in an
abbreviated proceeding. (Id.)
No commenters addressed the Board's proposal to allow the
arbitration panel to rule on market dominance. Accordingly, the Board
will adopt this aspect of Arbitration NPRM in the final rule.
The Board declines to adopt BNSF's proposal to allow consideration
of product and geographic competition as part of the market dominance
analysis. Although the Board has recognized that product and geographic
competition may impact competitive options, the Board does not
currently consider product and geographic competition in its market
dominance determinations due to the complexity such an analysis would
add to the process. See Mkt. Dominance Streamlined Approach, EP 756,
slip op. at 31-32 (STB served Aug. 3, 2020) (``The goal of the
streamlined market dominance approach is to reduce the burden on
parties and expedite proceedings, a goal that would not be met by
reintroducing a requirement that the agency has
[[Page 718]]
repeatedly found to be too burdensome as part of the non-streamlined
approach.''); Pet. of the Ass'n of Am. R.Rs. to Inst. a Rulemaking
Proceeding to Reintroduce Indirect Competition as a Factor Considered
in Mkt. Dominance Determinations for Coal Transported to Util.
Generation Facilities, EP 717, slip op. at 9 (STB served Mar. 19, 2013)
(``[A]nalyzing and adjudicating a contested allegation of indirect
competition is rarely straightforward and would require a substantial
amount of the Board's resources to examine matters far removed from its
transportation expertise and to determine if indirect competition
effectively constrains rates to reasonable levels . . . .''). As
indicated in FORR Final Rule, consideration of whether to incorporate
product and geographic competition in market dominance determinations
has constituted entire rulemaking proceedings on its own,\37\ and
addressing it here would unduly expand the scope of this proceeding.
FORR Final Rule, EP 755, slip op. at 26 (reserving this issue for
possible future proceedings). Accordingly, the Board will adopt the
regulations pertaining to market dominance without changes.
---------------------------------------------------------------------------
\37\ See, e.g., Mkt. Dominance Determinations--Prod. &
Geographic Competition, Docket No. EP 627; Pet. of the Ass'n of Am.
R.R.s, Docket No. EP 717.
---------------------------------------------------------------------------
E. Rate Reasonableness Standard of Review
In Arbitration NPRM, the Board noted that 49 U.S.C. 11708(c)(3)
requires the arbitration panel to consider the Board's methodologies
for setting maximum lawful rates, giving due consideration to the need
for differential pricing, and to ensure that its decision is consistent
with sound principles of rail regulation economics. Arbitration NPRM,
EP 765, slip op. at 37. However, Petitioners asserted, and the Board
agreed, that the statute does not require the arbitration panel to
follow any particular methodology. Accordingly, the proposed
regulations were designed to allow complainants methodological
flexibility to demonstrate to the arbitration panel that the rate is
unreasonable. Id. In addition, the Board proposed adding market-based
factors to the criteria upon which the arbitration panel could base its
decision. Id. at 38.\38\
---------------------------------------------------------------------------
\38\ Proposed 49 CFR 1108.29(b)(2) specifically stated that the
arbitration panel may ``otherwise base its decision on the Board's
existing rate review methodologies, revised versions of those
methodologies, new methodologies, or market-based factors,
including: rate levels on comparative traffic; market factors for
similar movements of the same commodity; and overall costs of
providing the rail service.'' Arbitration NPRM, EP 765, App. A. It
also stated that the decision ``must be consistent with sound
principles of rail regulation economics.'' Id.
---------------------------------------------------------------------------
BNSF argues that some of the features of the alternative dispute
resolution program it jointly developed with Montana grain interests
(Montana ADR Program) should be incorporated into the Board's proposed
arbitration program. Specifically, BNSF notes that the Board proposed
only that market-based factors ``may'' be considered by the arbitration
panel, but BNSF argues that such factors should be mandatory
considerations. (BNSF Comment 2.) BNSF claims this will encourage
settlements, or at least make the arbitration process more efficient,
by forcing parties to rely more on commercial representatives than on
lawyers and consultants. (Id. at 2-3.) It also argues that the market-
based factors are consistent with Board principles intended to reflect
market dynamics. (Id. at 3.)
BNSF also notes that not all of the market-based factors included
in the Montana ADR Program were included in the text of the proposed
regulations and suggests that they be added. These include
``consideration of the capital requirements of the rail system used by
the complainant's traffic and the revenue available to sustain the
network'' and ``relief would not be justified in the event a truck rate
that is lower than the contested rail rate is available to the
complainant from origin to destination for the same commodity for the
specific mileage segment.'' (Id.)
Coalition Associations oppose BNSF's proposal to add more market-
based factors to the decisional criteria or to make them mandatory,
arguing that doing so would inhibit the shipper's ability to have
flexibility in making its case and that railroads are free to rebut a
shipper's evidence by presenting market-based factors. (Coalition
Ass'ns Reply 25.) They also argue that the existence of a lower truck
rate is not necessarily indicative that a rail carrier's rate is
reasonable. (Id. at 26.)
In its comment, USDA argues that while the process for deciding
rate reasonableness in FORR is clear, the process for arbitration is
unclear. In particular, it argues that there is no explanation of
whether the arbitration panel will tend to choose a mid-point between
the shipper and railroad positions; create its own, independent measure
of what is a reasonable rate; or use some other process. (USDA Comment
3.) USDA notes that railroads have criticized FORR for involving
uncertainty; yet, USDA claims, the railroads' proposed arbitration
process has even more uncertainty than FORR, which is designed to
produce reasonable outcomes. (Id.) \39\
---------------------------------------------------------------------------
\39\ In support of the need for greater access to rate relief,
USDA states that no grain shipper has brought a rate case in over 20
years, even though the Board's own recently published rate study
shows that grain rates have been equal to or higher than their 1985
levels for the past decade, whereas rates for other commodities have
fallen. (USDA Comment 2.) As noted above, see supra Part I.B.1, the
need for greater access to rate relief, including for grain
shippers, has been well-established and so the Board need not
address this argument.
---------------------------------------------------------------------------
The Board will not make the modifications proposed by BNSF. To the
extent that parties believe that market-based factors are relevant to
the reasonableness of the rate, they are free to raise them, and
arbitrators are free to consider them, but there is no need to make it
a mandatory requirement. The proposed regulations already include a
long list of criteria that the arbitration panel must consider in
rendering its decision--the need for differential pricing, statutory
authorities, and sound economics. These criteria entail aspects of
market-based pricing, even if that concept is not specifically
addressed. Indeed, differential pricing--charging shippers different
rates based on demand--is a market-oriented concept. Requiring the
panel to separately address market-based factors in its decision, in
addition to the similar criteria it must already address, would merely
add unnecessary complication.\40\ For this same reason, there is no
need to include the other Montana ADR Program market-based factors in
the regulatory text.
---------------------------------------------------------------------------
\40\ In the regulatory text, the Board lists three specific
items that can be considered market-based factors. The Board will
add the phrase ``for example'' to the regulatory text so that it is
clear that these are not the only market-based factors that may be
considered. See App. A (49 CFR 1108.29(b)(2)).
---------------------------------------------------------------------------
In response to USDA's argument that the process for deciding rates
is unclear, the Board clarifies that the arbitration program adopted
here is not limited to a final offer structure. Accordingly, the
arbitration panel is not required to set the rate only at an amount
proposed by one of the parties. The decision of the arbitration panel
must be consistent with Sec. 11708 (and related requirements) and
sufficient to survive review under 49 CFR 1108.29(b)(2). The criteria
for a decision set forth in the statute and this regulation should
provide the parties with a sufficient degree of certainty as to how the
rate in an arbitration decision will be determined.
F. Revenue Adequacy
The Board in Arbitration NPRM rejected a request from Petitioners
that the new arbitration program include a general prohibition on
revenue
[[Page 719]]
adequacy evidence or methodologies. Arbitration NPRM, EP 765, slip op.
at 38-40. The Board indicated that Petitioners had not sufficiently
justified such methodological and evidentiary restrictions. Id. at 39.
Additionally, the Board stated that Petitioners' proposed evidentiary
restriction relating to revenue adequacy conflicted with Sec.
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)).'' Id. The
Board also stated that it was difficult to reconcile the methodological
flexibility afforded to arbitrators under this new arbitration process
with a revenue adequacy prohibition, particularly when it came to
existing rate case methodologies and market-based factors that
contained revenue-adequacy concepts to which Petitioners themselves did
not object. Id. at 39-40.
1. Railroad Interests
Joint Carriers indicate that their primary concern with the new
arbitration program proposed by the Board is the allowance of claims
based on the revenue adequacy constraint. They argue that the Board
should not let the controversy surrounding the revenue adequacy
constraint be the demise of what is otherwise a workable forum for
resolving rate disputes. (Joint Carriers Reply 3.) Joint Carriers
intimate that they would not participate if revenue adequacy constraint
claims can be arbitrated. (Id. at 11.) In contrast, BNSF states that it
would not pre-condition its participation in the arbitration program on
the exclusion of methodologies and evidence pertaining to revenue
adequacy. As such, BNSF would choose to participate in the program
outlined in Arbitration NPRM. (BNSF Comment 2.)
Joint Carriers state that they understand the concerns raised by
the Board in Arbitration NPRM but that ``more time is needed for the
industry to come to a consensus on how to resolve the Board's concerns
and also incentivize carrier participation in the [arbitration
program].'' (Joint Carriers Comment 7.) They further state that the
Board ``should reserve the use of any so-called revenue adequacy
constraint under Coal Rate Guidelines to formal rate cases.'' (Id. at
8.) They claim that the Board's concerns in Arbitration NPRM all
involved Petitioners' proposed restriction on revenue adequacy
evidence, but not the restriction on the revenue adequacy constraint,
and that the Board has not justified allowing use of this ``ill-defined
concept of rate regulation in an arbitration forum.'' (Id. at 15.) They
make the following arguments for why revenue adequacy constraint claims
should not be permitted in the new arbitration program.
Shippers are Not Disadvantaged. Joint Carriers argue that the
proposed arbitration program--even with a prohibition on revenue
adequacy constraint claims--offers shippers exactly what they have
requested. Specifically, the new program offers complainants some
methodological flexibility beyond Stand-Alone Cost so that disputes can
be resolved more quickly and with less cost and complexity, and avoids
parties having to first seek a determination from the Board on market
dominance. (Joint Carriers Comment 6.) Joint Carriers also argue that a
prohibition would not prejudice shippers, as they would remain free to
litigate revenue adequacy constraint claims in formal rate cases. (Id.
at 17.)
An Evidentiary Ban is Possible. In their comments, Joint Carriers
also argue that they understand the Board's stated concerns in
Arbitration NPRM about barring revenue adequacy evidence from
arbitrations and claim it was not their intent to bar consideration of
the need for differential pricing to permit a rail carrier to collect
adequate revenues, including the Full-SAC, Simplified-SAC, and Three-
Benchmark tests. They claim that a revenue adequacy evidentiary ban can
be redefined to address the Board's concerns and pledge to continue to
explore ways to make the ban narrower. (Id. at 7, 18-19.)
Unresolved Issues Should be Resolved by the Board. Joint Carriers
argue that, rather than an arbitration panel, the Board, with its
expertise, should be addressing the momentous, complex, and highly
contested questions regarding the revenue adequacy constraint and the
measure of revenue adequacy. (Joint Carriers Comment 7-9; Joint
Carriers Reply 10.) Joint Carriers note that the Board itself stated in
Assessment of Mediation & Arbitration Procedures, EP 699 (STB served
May 13, 2013), that disputes implicating significant policy or
regulatory issues are better suited for resolution using the Board's
formal adjudicatory procedures. (Id. at 17.)
Unresolved Issues Would Create Complications. Joint Carriers argue
that the current revenue adequacy constraint test is ``afflicted with
radical uncertainty'' and arbitrators would have no idea where to begin
addressing such claims, as there would be no guidance from the Board,
which would make arbitration decisions arbitrary and unsound. (Joint
Carriers Comment 3.) They note that the Board has not resolved the
serious flaws that carriers have identified with the use of revenue
adequacy claims and argue that it would be inappropriate to leave this
concept to be resolved in arbitration--particularly since the
arbitrations are intended to be quick and simple. (Joint Carriers
Comment 9-10; Joint Carriers Reply 10.) \41\ Similarly, they argue that
revenue adequacy constraint claims would involve a tremendous amount of
evidence, particularly since the Board has not provided guidance on the
types of evidence that would be necessary in such cases. (Joint
Carriers Reply 10.) Joint Carriers assert that the fact that there are
three pending proceedings regarding revenue adequacy should foreclose
the use of that methodology in arbitrations, particularly since it is
unclear whether the Board's determinations in those proceedings would
survive judicial review. (Joint Carriers Comment 15.)
---------------------------------------------------------------------------
\41\ Joint Carriers summarize the four general concerns with
using system-wide revenue adequacy to determine rate reasonableness
that they have raised in other proceedings, including Joint Petition
for Rulemaking--Annual Revenue Adequacy Determinations, Docket No.
EP 766. (Joint Carriers Comment 10-14.) The Board need not address
those substantive arguments here; it will address those arguments if
and when those arguments are relevant to a particular arbitration
decision that is appealed to the Board.
---------------------------------------------------------------------------
Carriers in Arbitration Have Limited Appellate Rights. Joint
Carriers argue that it is unfair to ask the railroads to litigate the
issues of revenue adequacy in a forum with limited appellate rights,
even though the railroads have asked the Board to address those
arguments. (Joint Carriers Comment 17; Joint Carriers Reply 9-10.) They
assert that the Board, which is the expert, should address these issues
in the first instance, and that they should not be left to arbitration
panels in a forum with an expedited timeframe. (Joint Carriers Reply 9-
10.)
* * * * *
For these reasons, Joint Carriers request that the Board require
that any claims based on the revenue adequacy constraint be filed in a
formal rate case, at least until the Board has addressed the
ambiguities surrounding it. (Joint Carriers Comment 8; Joint Carriers
Reply 9.) \42\ Alternatively, they argue the Board should first adopt
the railroad
[[Page 720]]
industry's proposal in Joint Petition for Rulemaking--Annual Revenue
Adequacy Determinations, Docket No. EP 766, to modernize how revenue
adequacy is measured so that parties do not fight over this issue in
arbitration. (Joint Carriers Comment at 15-16.)
---------------------------------------------------------------------------
\42\ Joint Carriers acknowledge that if the Board later does
adopt a methodology on how the revenue adequacy constraint should be
applied, it could be used in arbitration in the same way as other
Board-recognized methodologies. They state, however, that this would
be considered a material change in the law and so railroads would
have to consider whether to opt out of the arbitration program.
(Joint Carriers Reply 12.)
---------------------------------------------------------------------------
2. Shipper Interests
NGFA and APFM both support permitting evidence and claims based on
revenue adequacy to be used in arbitrations. (NGFA Comment 9; AFPM
Comment 11.)
Coalition Associations object to the Joint Carriers' arguments for
banning revenue adequacy evidence. Coalition Associations argue that 49
U.S.C. 11708(c)(3) contains a Congressional directive for the Board to
consider revenue adequacy in Board-established arbitration programs.
(Coalition Ass'ns Reply 13.) They also argue that the purpose of the
revenue adequacy constraint is to identify the extent to which
differential pricing is necessary to permit a carrier to collect
adequate revenues pursuant to the concept of revenue adequacy defined
at 49 U.S.C. 10704(a)(2). (Id.)
Coalition Associations also state that a ban on revenue adequacy
claims in arbitration would make formal cases the only option for
shippers to bring a small claim asserting revenue adequacy. They argue
that, because formal rate cases are widely recognized as inaccessible
to shippers with small claims, there would essentially be no revenue
adequacy constraint for small claims. (Id. at 14.) Litigating a small
dispute in a formal case is not realistic, they claim, because
railroads will employ a ``war-of-attrition strategy'' to make such
cases as burdensome as possible. (Id.) Coalition Associations state
that the ban on revenue adequacy is particularly problematic when
combined with the FORR exemption: if both are adopted as part of the
Board's arbitration program, revenue adequacy claims would not be
possible in either the arbitration program or FORR. (Id.) \43\
---------------------------------------------------------------------------
\43\ Coalition Associations respond to Joint Carriers' arguments
disputing the validity of the revenue adequacy constraint.
(Coalition Ass'ns Reply 15-19.) As noted above, supra n.41, the
Board here will not consider Joint Carriers' arguments and so does
not address Coalition Associations' counterarguments.
---------------------------------------------------------------------------
3. USDA
USDA agrees with the Board that revenue adequacy is already
embedded in a variety of rate reasonableness considerations and that
the methodological flexibility of the arbitration program necessitates
its inclusion. (USDA Comment 4.)
4. Board Action
The Board will not modify the final rule to prohibit revenue
adequacy constraint claims or evidence, as requested by Joint Carriers.
In Arbitration NPRM, the Board expressed concern that Petitioners'
proposed revenue adequacy restrictions were too broad and could
therefore exclude claims and evidence that were permitted by statute or
prior Board decision. Arbitration NPRM, EP 765, slip op. at 39-40.
Specifically, the Board explained that Petitioners supported the use of
the Three-Benchmark methodology in arbitration, even though one of the
key pillars of that methodology is the Revenue Shortfall Allocation
Method (RSAM) benchmark, which is a measure of revenue adequacy.
Id.\44\ The logical extension of Petitioners' position--proposing broad
prohibitions on any use of ``revenue adequacy'' in the arbitration
program--was that the Three-Benchmark methodology would be prohibited
as a ``revenue adequacy'' approach.
---------------------------------------------------------------------------
\44\ RSAM is ``intended to measure the average markup above
variable cost that the carrier would need to charge to meet its own
revenue needs,'' i.e., to become revenue adequate. Simplified
Standards, EP 646 (Sub-No. 1), slip op. at 19.
---------------------------------------------------------------------------
In their comment, Joint Carriers only vaguely address the Board's
concerns with a prohibition on revenue adequacy claims. They state,
``[w]ith the high level of uncertainty surrounding the use of `revenue
adequacy' in rate challenges--and the highly contentious nature of
those questions--the Board should reserve the use of any so-called
revenue adequacy constraint under Coal Rate Guidelines to formal rate
cases filed before the Board.'' (Joint Carriers Comment 8.) Inherent in
Joint Carriers' argument is the premise that it would be easy to
separate ``so-called'' Coal Rate Guidelines revenue adequacy constraint
methodologies from other new methodologies that rely on revenue
adequacy to some degree. Even if one could differentiate when comparing
Coal Rate Guidelines-based revenue adequacy claims versus other
existing Board-defined methodologies, the distinction could be less
clear when a complainant relies on a new methodology. One of the key
features of the new arbitration program (which Petitioners supported in
the petition for rulemaking) is that complainants will have
methodological flexibility to demonstrate that a rate is unreasonable.
This will allow complainants to develop new methodologies that, like
Three-Benchmark, may contain aspects or components that are based on
the concept of revenue adequacy, making them difficult to categorize.
In such cases, the arbitration could turn into a debate over whether a
methodology is permissible rather than on the merits of the rate
itself. Restrictions on revenue adequacy methodologies could also have
a chilling effect on complainants considering the use of new
methodologies. In fact, parties may feel it necessary to come to the
Board to first obtain a determination on whether a particular
methodology is permitted before initiating the arbitration process,
which would undermine the goal of methodological flexibility. Having to
distinguish between permissible and impermissible categories of revenue
adequacy claims and evidence would likely add more confusion and
litigation expense in what is intended to be an expedited, streamlined
dispute resolution process.
Joint Carriers also provide no other specific comments on how to
administer a partial revenue adequacy evidentiary prohibition. They
argue that the Board's concerns with revenue adequacy in Arbitration
NPRM all relate only to their proposed evidentiary ban, not with a ban
on the revenue adequacy constraint itself. They acknowledge that their
originally proposed prohibition on revenue adequacy evidence was too
broad, but they claim that the ban could be more narrowly tailored and
indicate that they would offer thoughts on how to do so in their reply.
(Joint Carriers Comment 7, 18.) However, in their reply, no additional
details are given as to how they would narrow the evidentiary ban, with
Joint Carriers instead continuing to urge a methodological ban on the
use of any revenue adequacy constraint. In any event, even a narrow
evidentiary prohibition could still interfere with a complainant's
ability to rely on new methodologies.
Joint Carriers also argue that the Board, not arbitrators, should
be ruling on the undefined issues surrounding revenue adequacy.
However, if an arbitration decision is not appealed, the decision will
remain confidential and non-precedential and so would have no impact
outside of the arbitration in question. On the other hand, if an
arbitration decision is appealed, the Board will be able to review the
arbitration panel's decision pursuant to the standard set forth in 49
U.S.C. 11708(h), including that the decision is consistent with sound
principles of rail regulation economics.
Joint Carriers argue that the carriers' appellate rights are
limited under this statutorily prescribed standard of review. However,
as discussed below, infra Part III.G, the Board expects to take
[[Page 721]]
a context-specific approach to reviewing arbitration decisions,
including decisions that consider a revenue adequacy methodology. A
context-specific finding in a particular appeal on the criteria set
forth in 49 U.S.C. 11708(h) would not, standing alone, result in the
adoption of, or a material change to, a particular methodology by the
Board. Indeed, Board decisions to adopt or alter rate review
methodologies have been based on broader considerations than the
criteria set forth in the appeals standard. As such, the carriers'
concerns that the Board is foregoing its role with respect to the
issues surrounding revenue adequacy, including those that pertain to
the constraint under Coal Rate Guidelines, are misplaced.
Joint Carriers also express concern that claims based on revenue
adequacy are too complex to be properly litigated within the structural
confines of the arbitration process. However, the very purpose of the
arbitration process is to force parties to streamline their cases to
reduce this complexity. When deciding whether to initiate an
arbitration based on a revenue adequacy constraint claim, a complainant
will need to weigh the fact that it will be limited by the requirements
of the arbitration process. Conversely, the same structural confines
will force a defendant carrier to streamline its arguments in response
to a revenue adequacy constraint claim.
Finally, the Board finds Joint Carriers' argument that shippers
would still gain significant benefits from an arbitration program that
prohibits revenue adequacy evidence and methodologies to be highly
speculative. At this time, there is no reason to deprive shippers of
the opportunity to try out revenue adequacy approaches that would
clearly be permissible in a FORR case.
G. Appeals
Consistent with the requirements of 49 U.S.C. 11708(h), the Board
proposed procedures allowing parties to appeal the arbitration panel's
decision to the Board and established the standard of review the agency
would apply in reviewing such decisions. See Arbitration NPRM, EP 765,
slip op. at 43-44 (detailing procedures for appeal and the standard of
review). Under that standard of review, the Board may review the
arbitration decision to determine if:
(1) the decision is consistent with sound principles of rail
regulation economics;
(2) a clear abuse of arbitral authority or discretion occurred;
(3) the decision directly contravenes statutory authority; or
(4) the award limitation . . . was violated.
The Board also proposed that the appellate submissions--including the
arbitration decision, the petition to vacate or modify the arbitration
award, and any reply--be filed under seal. Id. at 49. As for its
decision ruling on the appeal, the Board proposed that it would be
public, but that the Board would maintain confidentiality to the
maximum extent possible. Id. at 50-51. Toward that end, the Board
proposed a process allowing parties to review the Board's decision and
request redactions prior to its publication. See id., App. A (proposed
Sec. 1108.31(d)(2).) The Board also noted that its decisions on appeal
would be precedential. Id. at 49.
Joint Carriers argue that Board decisions resolving appeals of
arbitration decisions should be non-precedential and binding only on
the parties--the same as the arbitration decision itself. (Joint
Carriers Comment 21.) Joint Carriers argue that Board decisions on
appeal, if made precedential, could create law and policy. This
outcome, they assert, will disincentivize parties from participating
and encourage the high-stakes litigation tactics that arbitration is
intended to avoid, thus undermining the entire purpose for making the
arbitration decisions themselves non-precedential. (Id. at 22-23.) \45\
Joint Carriers claim that the Board has the authority to limit the
precedential value of such decisions, arguing that it has previously
been done by the Board and other agencies, and that such processes have
been affirmed by the courts. (Id. at 23 n.45 (citing cases in support
of assertion that the Board can designate certain decisions non-
precedential).)
---------------------------------------------------------------------------
\45\ Joint Carriers note that the Board originally decided that
Board decisions ruling on arbitration appeals would be precedential
in Arbitration of Certain Disputes Subject to the Statutory
Jurisdiction of the Surface Transportation Board, 2 S.T.B. 564, 577
(1997). (See Joint Carriers Comment 22 n.44.) They further note that
this resulted in the Board changing the language of the regulatory
text that was originally proposed in that proceeding from
``arbitration decisions'' to ``decisions rendered by arbitrators.''
(Id.) However, Joint Carriers point out that the Board then modified
the language again in Assessment of Mediation & Arbitration
Procedures, EP 699, slip op. at 31 (STB served May 13, 2013), this
time changing the language back to ``arbitration decisions,'' though
the Board did not discuss if a substantive change was intended.
(Id.)
Although the Board modified the language of 49 CFR 1108.10 in
Assessment of Mediation & Arbitration Procedures, it is clear from
the context of that provision when read as a whole, and from the
Board's explanations in that proceeding, that the term ``arbitration
decisions'' was referring only to the decisions issued by the
arbitrators (not Board decisions ruling on appeals of arbitration
decisions). In the regulation, the sentence that includes the term
``arbitration decisions'' is proceeded by a sentence referring to
``[d]ecisions rendered by arbitrators pursuant to these rules . . .
.'' 49 U.S.C. 1108.10. The two sentences, when read together,
indicate that the term ``arbitration decisions'' in the second
sentence was referring back to the subject of the first sentence,
i.e., ``Decisions rendered by arbitrators.'' In addition, at no
point in Assessment of Mediation & Arbitration Procedures did the
Board indicate that a change was intended. In fact, in the notice of
proposed rulemaking, the Board stated the arbitration program
``would allow carriers more flexibility in resolving customer-
specific disputes because resolution would be confidential and
nonprecedential, unless the arbitrator's decision is appealed.''
Assessment of Mediation & Arb. Procs., EP 699, slip op. at 3 (STB
served Mar. 28, 2012) (emphasis added).
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Additionally, Joint Carriers propose that the Board add a
disclaimer to its decisions on appeal of arbitration decisions, similar
to the digests the Board includes with full Board decisions, and as is
done by other agencies. (Id. at 24.) They also suggest that if a party
does introduce a non-precedential decision to the arbitration panel,
the arbitration be immediately dismissed to ensure the panel is not
improperly influenced. (Id.) Joint Carriers state that if the Board
does decide to make its decisions on arbitration appeals precedential,
then it should clarify that such decisions can constitute a material
change in the law that allows carriers to withdraw from the arbitration
program. (Id. at 24-25.) Joint Carriers argue that the narrow standard
for review on appeal and the parties' limited appellate rights would
not prevent the Board from potentially creating new law or policy
through such decisions. (Id. at 25.)
Coalition Associations oppose Joint Carriers' proposal that the
Board's decisions on appeal be non-precedential for several reasons.
First, they argue that if these Board decisions are non-precedential,
carriers would likely appeal every adverse arbitration decision and,
therefore, the cost to litigate an appeal to the Board would need to be
considered an automatic expense. (Coalition Ass'ns Reply 21.) Second,
Coalition Associations argue that non-precedential decisions on appeal
will not discourage parties from using ``high-cost, high-stakes''
tactics during arbitration. Coalition Associations note that the
appellate standard of review is focused only on fundamental issues of
decisional fairness and quality, not an opportunity to relitigate the
merits. (Id.) Third, Coalition Associations dispute the notion that
precedential Board decisions will disincentivize carrier participation.
(Id. at 22.) Coalition Associations argue that, even if the Joint
Carriers were right and this is a disincentive, there are other
incentives in the arbitration
[[Page 722]]
program that should encourage railroad participation. (Id.)
The Board rejects Joint Carriers' request to make Board decisions
on appeal non-precedential. Contrary to Joint Carriers' argument, the
``disclaimer'' footnote appended to the digests in full Board decisions
is not analogous to a Board decision resolving an arbitration appeal.
The digest merely reflects a practice that the Board has developed for
the purpose of ``increasing transparency in government and to foster
public understanding of Board decisions.'' See Pol'y Statement on Plain
Language Digs. in Decisions, EP 696, slip op. at 1-2 (STB served Sept.
2, 2010). The digest does not contain any substantive legal findings or
analysis, but merely summarizes the outcome of the Board's decision.
Id. at 2 (stating that digests ``will be analogous to the syllabus and
headnotes of United States Supreme Court decisions, which are prepared
for the convenience of the public, but cannot be relied upon as
precedent''). By contrast, in ruling on an appeal of an arbitration
decision, the Board would be issuing a decision on whether the
arbitration panel's decision meets statutorily prescribed standards.
Board decisions, even in arbitrations, have always been public and
precedential. Cf., e.g., Union Pacific Corporation--Control & Merger--
Southern Pacific Rail Corp., FD 32760 (Sub-No. 42) (STB served Feb. 28,
2006) (citing Grand Trunk Western Railroad Company--Merger--Detroit &
Toledo Shore Line Railroad Company--Arbitration Review, FD 28676 (Sub-
No. 2) (STB served Feb. 26, 1996)) (public decision in labor
arbitration citing other precedential decisions in labor arbitrations).
The cases cited by Joint Carriers are not relevant; they involve
immigration and Medicare agencies issuing non-precedential decisions
under federal laws quite distinct from the Board's governing
statute.\46\ Here, neither the provisions of 49 U.S.C. 11708(h) nor the
legislative history indicate that Congress intended that Board
decisions in arbitration appeals should not be given precedential
effect.
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\46\ See, e.g., Fogo de Chao (Holdings) Inc. v. U.S. Dept. of
Homeland Sec., 769 F.3d 1127 (D.C. Cir. 2014) (reviewing non-
precedential decision by the U.S. Citizenship and Immigration
Services' Administrative Appeals Office regarding application of
denial of a visa request pursuant to 8 U.S.C. 1184(c)(1)); Martinez
v. Holder, 740 F.3d 902 (4th Cir. 2014) (reviewing non-precedential
decision by the Board of Immigration Appeals regarding application
of 8 U.S.C. 1231(b)(3), the Immigration and Nationality Act, and the
Convention Against Torture treaty); Arobelidze v. Holder, 653 F.3d
513 (7th Cir. 2011) (reviewing non-precedential decision by the
Board of Immigration Appeals regarding application of the Child
Status Protection Act); Quinchia v. U.S. Att'y Gen., 552 F.3d 1255
(11th Cir. 2008) (reviewing non-precedential decision by the Board
of Immigration Appeals regarding application of the Immigration and
Nationality Act); Tangney v. Burwell, 186 F. Supp. 3d 45 (D. Mass.
2016) (reviewing a non-precedential decision by the Medicare Appeals
Council (within the U.S. Department of Health and Human Services)
regarding Medicare Part D coverage).
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The Board also agrees with Coalition Associations that Joint
Carriers' argument about ``high-cost, high-stake tactics'' is flawed.
If a carrier loses an arbitration, the appeal of that decision to the
Board would not serve as an opportunity for the carrier to make new
arguments on the merits of rate reasonableness. Accordingly, the
arguments made by the carrier in the arbitration should be rooted in
the same issues regardless of whether the Board decision on appeal is
precedential or non-precedential. It is unlikely that the fact that the
Board's decision on appeal of the arbitration panel's decision would be
precedential would materially change the nature of the defendant
carrier's arguments.
Because Board decisions on appeal of arbitration decisions would be
precedential, Joint Carriers are correct that such Board decisions
could, in principle, effect a material change in law. Accordingly, as
requested by Joint Carriers, the Board clarifies here that a Board
decision on an appeal of an arbitration decision could constitute a
material change in the law for which a carrier could withdraw from the
arbitration program. However, notwithstanding the fine distinctions
that can be drawn between the terms ``precedential'' and ``non-
precedential,'' a decision ruling on an appeal of an arbitration
decision would not by default establish any type of broad precedent
that dictates or affects the outcome in future arbitrations or rate
cases. The Board expects to review an arbitration decision under the
Sec. 11708(h) factors based on the context of that specific
arbitration. The four criteria by which the Board must review the
arbitration decision are limited. The most expansive of these, and the
one under which most appeals will likely be argued under, is the first
criterion: that the decision is consistent with sound principles of
rail regulation economics. There are multiple outcomes that an
arbitration panel might reach in deciding whether a rate is reasonable
that would be considered ``consistent with sound principles of railroad
economics.'' Just because the Board affirms one of those possible
outcomes in a particular arbitration decision as consistent with sound
principles would not, by itself, create or alter a rate reasonableness
methodology and therefore constitute a material change in law.
Lastly, as a procedural matter, the Board will add regulatory
language stating that the parties to an appeal of an arbitration
decision may attach excerpts from any materials from the underlying
arbitration record that are relevant to its petition or reply. In
addition, the regulatory language will provide that such materials will
be treated as confidential and will not count toward the page limit for
such filings. See App. A (49 CFR 1108.31(a)(3)).
H. Relief
The Board proposed that relief under the new arbitration program
would be capped at $4 million over a two-year relief period, which
could be a combination of retroactive relief (i.e., reparations) \47\
and prospective relief (i.e., prescription). Arbitration NPRM, EP 765,
slip op. at 41-42. The Board proposed that amount and time-period to
match the relief available under the proposal in FORR SNPRM. Id. at 41.
Additionally, the Board proposed that parties could agree to modify the
rate cap in a particular dispute, though they could not exceed the cap
of $25 million or a five-year relief period set forth in 49 U.S.C.
11708(g)(3). Id. at 43.
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\47\ The standard reparations period reaches back two years
prior to the date of the complaint. 49 U.S.C. 11705(c) (requiring
that complaint to recover damages under 49 U.S.C. 11704(b) be filed
with the Board within two years after the claim accrues).
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Coalition Associations argue in the FORR proceeding that the relief
cap for that process should be adjusted to match the cap currently in
use in Three-Benchmark cases; as such, they state that the relief cap
for the arbitration program should correspondingly be adjusted to
maintain parity between the FORR and arbitration processes. (Coalition
Ass'ns Comment 19-20.) They also propose that the Board allow the two-
year relief period to begin on a date set by the complainant.\48\
Coalition Associations argue that many carload shippers cannot or
choose not to solicit business until they have obtained a reasonable
transportation rate, which would not be established until the
arbitration is complete, and then it may be several more months before
shippers to have an opportunity to bid on such business. (Id. at 20.)
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\48\ Specifically, Coalition Associations propose that the
complainant would notify the defendant in writing of the date on
which it wishes the two-year relief period to begin and, in the
absence of written notice, the period would begin on the one-year
anniversary of the arbitration decision. (Coalition Ass'ns Comment
20.)
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[[Page 723]]
AFPM and NGFA support the $4 million relief cap. (AFPM Comment 12;
NGFA Comment 8.) However, AFPM also urges the Board to adopt a second
tier of available relief in the FORR docket of ten years with no
monetary limit and states that, if the Board were to do so, it should
also do so for the new arbitration program. (AFPM Comment 12.)
Joint Carriers do not oppose the Coalition Associations' request
that the relief cap be raised to match the current amount of relief
available in Three-Benchmark cases. (Joint Carriers Reply 21.) However,
Joint Carriers oppose creating a two-tiered system of relief for FORR
and the arbitration program and allowing shippers to determine the date
on which the relief period starts. (Id. at 20-21.)
The Board will keep the relief period at two years. However, the
Board will increase the dollar cap on rate relief to the same amount as
for Three-Benchmark cases, which today is $4,471,013.\49\ This amount
will also match the amount of relief available under the FORR process,
ensuring that shippers will be entitled to the same amount of relief
regardless of whether carriers opt to participate in the new
arbitration program or to be subject to FORR challenges. For the
reasons set forth in FORR Final Rule, the Board will also reject
Coalition Associations' request that a complainant be allowed to select
the date on which prospective relief begins. FORR Final Rule, EP 755,
slip op. at 30 (finding that such an option would allow complainants to
choose a relief period that is entirely disconnected from the conduct
found unlawful). Additionally, the Board in that decision is rejecting
AFPM's proposal to establish a second, higher tier of rate relief for
the FORR process. Id. (stating that the purpose of FORR is to resolve
small disputes). The Board finds that the argument for a second tier in
the arbitration program suffers from the same issues identified in FORR
Final Rule.
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\49\ The Board annually indexes the rate relief cap for Three-
Benchmark cases using the Producer Price Index (PPI). See Simplified
Standards, EP 646 (Sub-No. 1), slip op. 28 n.36; see also Rate
Regulation Reforms, EP 715 (STB served July 18, 2013), remanded in
part sub nom. CSX Transp., Inc. v. STB, 754 F.3d 1056 (D.C. Cir.
2014), aff'd (STB served Mar. 15, 2015) (raising relief cap in
Three-Benchmark cases from $1 million to $4 million). The relief cap
for the arbitration program will incorporate indexing that has
previously been applied to the Three-Benchmark cap, so that the cap
for arbitration is the same as the cap for Three-Benchmark.
In various filings, the parties addressing this issue have
stated that the Board should index the relief cap using the Consumer
Price Index, which the Board cited as the appropriate index in the
proposed regulations in Arbitration NPRM. However, when indexing
relief caps, the Board uses the Producer Price Index. See Rate
Regulation Reforms, EP 715, slip op. at 11-12 n.10 (STB served July
18, 2013). The Board will therefore modify the final rule
accordingly. See App. A (49 CFR 1108.28(b)).
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I. Confidentiality
1. The Board's Proposal
In the initial petition for rulemaking, Petitioners proposed that
the new arbitration process be confidential, a significant change from
the existing arbitration program. The Board agreed that confidentiality
would incentivize carriers to participate in the new program and
therefore proposed that all aspects of the arbitration process from
initiation of the case (i.e., submission of the Initial Notice) through
the arbitration decision would be confidential. Arbitration NPRM, EP
765, slip op. at 47-49. As such, the Board proposed that none of the
documents or materials relating to the arbitration--including the
arbitration decision itself--would be published on the Board's website
or otherwise made available to the public.
However, the Board noted that decisions from the Director of OE on
requests for access to the confidential data from the Waybill Sample
might be a possible exception. The Board proposed that the Director's
determinations not be posted in a formal docket, id. at 30, but it also
stated that there was uncertainty about whether the agency would be
required to publish and/or release such rulings, id. at 48-49.
Accordingly, the Board invited parties to comment on whether
publication was required, as well as whether there are alternative
means of preserving the confidentiality of these materials. Id. at 48-
49.
The Board also proposed 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,
would be deemed confidential as part of the arbitration process.
However, it invited parties 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 the
Freedom of Information Act (FOIA) pursuant to 5 U.S.C. 574(j). Id. at
48.
Lastly, the Board determined that appeals of the arbitration
decision to the Board could not be kept confidential, as Petitioners
had requested. Id. at 49-50. As such, the Board proposed that parties
must submit public versions of their appellate filings with appropriate
confidential information redacted. Id. The Board also proposed that its
decision ruling on the appeal would be public, but that the agency
would attempt to keep confidential any financial or commercial
information that would have an effect on the marketplace. Id. In
particular, the Board proposed that it would be required to maintain
the confidentiality of the arbitration decision to the ``maximum extent
possible,'' giving particular attention to avoiding disclosure of the
origin-destination pair involved in the arbitration as well as the
specific relief awarded by the arbitration panel. Id. at 50-51. The
Board included steps in the proposed regulation allowing parties an
opportunity to review proposed redactions in the opposing side's filing
and the Board's decision prior to posting and publication. Id. at 50;
id. at App. A (proposed Sec. 1108.31(d)(2)).
The Board provided several reasons why it proposed that the
arbitration process be kept confidential to the maximum extent
possible. First, if carriers were faced with the choice of formally
adjudicating or arbitrating a rate dispute where the outcome would be
public, carriers would be more likely to choose formal adjudication.
Id. at 46-47. Second, public arbitrations might undermine the informal
nature of the arbitration process, especially where the carrier fears
that the decision would be used by shippers in other rate negotiations
and disputes. Id. at 47. Third, keeping arbitration decisions
confidential could encourage more settlements, as parties would not
have to worry about the impact the settlement would have on other rate
negotiations. Id. Lastly, the Board acknowledged that confidentiality
was opposed by several of the shipper interests, but it concluded that
confidentiality was a necessary trade-off to incentivize carriers to
participate. Id.
2. Shipper Interests and USDA
The shipper interests and USDA object to this aspect of the Board's
proposal on the following grounds.
Carrier Participation. Coalition Associations and NGFA dispute the
notion that confidentiality will better incentivize carriers to
participate in the arbitration program. Coalition Associations argue
that the non-precedential nature of arbitration decisions renders most
of the concerns about them being used in future rate negotiations moot.
(Coalition Ass'ns Comment 8-9.) They argue that the carriers only
advocate for confidentiality to gain an advantage in the arbitrations.
(Id. at 9, 10-11.) NGFA also questions the Board's reasoning,
[[Page 724]]
given that the primary driver for the Petitioners' goal for the
arbitration program was to obtain an exemption from FORR. (NGFA Comment
7.)
Transparency Will Encourage Settlements. AFPM, NGFA, IMA-NA, and
Indorama dispute the notion that confidentiality would create an
environment for more settlements and argue that the opposite is true:
transparency would encourage more settlements. NGFA states that in its
experience with its own arbitration system, a public decision often
provides a significant incentive for the involved parties to settle the
dispute themselves, often prior to the substantive start of the
arbitration process. (NGFA Comment 7.) \50\ It asserts that the
objective of an effective regulatory backstop is to incentivize market
participants to enter into mutually acceptable arrangements, but
excessive confidentiality can defeat that purpose. (Id. at 8.) IMA-NA
and Indorama argue that the confidentiality requirement would prohibit
the use of prior decisions in future arbitrations. (IMA-NA Comment 18;
Indorama Comment 18.) These parties also point out that FORR decisions
would be public, which they assert is another reason why FORR is
preferrable to the arbitration program. (AFPM Comment 13; IMA-NA
Comment 18; Indorama Comment 18; see also NGFA Comment 7 (arguing that
this is another reason to limit the FORR exemption until such time as
the Board conducts its programmatic review).)
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\50\ NGFA proposes that the arbitration decision be published on
the Board's website, including: the names of the parties involved, a
general description of the case, the rationale and reasoning, the
award (if any), and the names of the arbitrators. (NGFA Comment 7.)
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Informal Litigation. NGFA disagrees with the idea that
confidentiality will make arbitration more informal and less like
litigation. It states that there is no track record or actual proof
that challenging rates in an arbitration process will be any less
rigorous than a case litigated under FORR. (NGFA Comment 7.) Coalition
Associations argue that if arbitration decisions are non-precedential,
carriers should have no disincentive to arbitrate or any reason to
treat the arbitration like a formal litigation. (Coalition Ass'ns
Comment 9.)
Informational Asymmetry. Coalition Associations argue that making
the arbitration process confidential would create an unfair
informational asymmetry because carriers will have more experience with
arbitration than shippers. (Coalition Ass'ns Comment 8.) Specifically,
they claim that keeping the arbitrations confidential will prevent
shippers from having any idea what types of arguments have or have not
been successful and give railroads an advantage when it comes to
picking arbitrators. (Id. at 9-10; Coalition Ass'ns Reply 6.) Coalition
Associations argue that this informational asymmetry increases the risk
that shippers will enter into inadvisable settlements. (Coalition
Ass'ns Comment 9.) They note that there would be no such informational
asymmetry problem under the FORR process. (Coalition Ass'ns Reply 6.)
USDA raises the same concern about informational asymmetry.
However, instead of making arbitration decisions public, USDA
encourages the Board to seek more information in the confidential case
summaries and provide as much information as possible in the agency's
quarterly reports,
[…truncated; see source link]Indexed from Federal Register on January 4, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.