Rule2022-27926
Final Offer Rate Review; Expanding Access to Rate Relief
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
March 6, 2023
Issuing agencies
Surface Transportation Board
Abstract
The Surface Transportation Board (STB or Board) is adopting a final rule in Docket No. EP 755 to establish a new procedure for challenging the reasonableness of railroad rates in smaller cases. Under this rate review procedure, the Board will decide a case by selecting either the complainant's or the defendant's final offer, subject to an expedited procedural schedule that adheres to firm deadlines. The Board is also terminating its proceeding in Docket No. EP 665 (Sub-No. 2).
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 2 (Wednesday, January 4, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 2 (Wednesday, January 4, 2023)]
[Rules and Regulations]
[Pages 299-320]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-27926]
=======================================================================
-----------------------------------------------------------------------
SURFACE TRANSPORTATION BOARD
49 CFR Parts 1002, 1111, 1114 and 1115
[Docket No. EP 755; Docket No. EP 665 (Sub-No. 2)]
Final Offer Rate Review; Expanding Access to Rate Relief
AGENCY: Surface Transportation Board.
ACTION: Final rule; termination of proceeding.
-----------------------------------------------------------------------
SUMMARY: The Surface Transportation Board (STB or Board) is adopting a
final rule in Docket No. EP 755 to establish a new procedure for
challenging the reasonableness of railroad rates in smaller cases.
Under this rate review procedure, the Board will decide a case by
selecting either the complainant's or the defendant's final offer,
subject to an expedited procedural schedule that adheres to firm
deadlines. The Board is also terminating its proceeding in Docket No.
EP 665 (Sub-No. 2).
DATES: The final rule is effective March 6, 2023. The termination of
proceeding is effective on January 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: In January 2018, the Board established its
Rate Reform Task Force (RRTF), with the objectives of developing
recommendations to reform and streamline the Board's rate review
processes for large cases and determining how to best provide a rate
review process for smaller cases. After holding informal meetings
throughout 2018, the RRTF issued a report on April 25, 2019 (RRTF
Report).\1\ Among other recommendations, the RRTF included a proposal
for a final offer procedure, which it described as ``an administrative
approach that would take advantage of procedural limitations, rather
than substantive limitations, to constrain the cost and complexity of a
rate reasonableness case.'' RRTF Rep. 12. Versions of a final offer
process for rate review have also been recommended by the U.S.
Department of Agriculture (USDA) and a committee of the Transportation
Research Board (TRB).
---------------------------------------------------------------------------
\1\ The RRTF Report was posted on the Board's website on April
29, 2019, and can be accessed at <a href="https://www.stb.gov/stb/rail/Rate_Reform_Task_Force_Report.pdf">https://www.stb.gov/stb/rail/Rate_Reform_Task_Force_Report.pdf</a>.
---------------------------------------------------------------------------
In a notice of proposed rulemaking issued on September 12, 2019,
the Board proposed to build on the RRTF recommendation and establish a
new rate case procedure for smaller cases, the Final Offer Rate Review
(FORR) procedure. Final Offer Rate Rev. (NPRM), EP 755 et al. (STB
served Sept. 12, 2019).\2\
---------------------------------------------------------------------------
\2\ The NPRM was published in the Federal Register, 84 FR 48872
(Sept. 17, 2019).
---------------------------------------------------------------------------
The Board received numerous comments on the NPRM. By decision
served on May 15, 2020, to permit informal discussions with
stakeholders, the Board waived the general prohibition on ex parte
communications between June 1, 2020, and July 15, 2020.
[[Page 300]]
Meetings took place during the specified period; parties filed
memoranda pursuant to 49 CFR 1102.2(g)(4); the memoranda were posted on
the Board's website; and parties were permitted to submit written
comments in response to the memoranda.
On November 15, 2021, the Board issued a supplemental notice of
proposed rulemaking, which made minor changes to the proposal in the
NPRM. Final Offer Rate Rev. (SNPRM), EP 755 et al. (STB served Nov. 15,
2021).\3\ The Board issued the SNPRM ``so that the modified FORR
proposal may be considered in parallel with the proposal in Docket No.
EP 765 to establish an arbitration program that could include an
exemption from FORR for carriers that participate in the program.''
SNPRM, EP 755 et al., slip op. at 9. The Board received several
comments and reply comments on the SNPRM.\4\
---------------------------------------------------------------------------
\3\ The SNPRM was published in the Federal Register, 86 FR.
67622 (Nov. 26, 2021).
\4\ The following parties submitted comments on the SNPRM: the
American Chemistry Council, The Fertilizer Institute, the National
Industrial Transportation League, the Chlorine Institute, and the
Corn Refiners Association (collectively, the Coalition
Associations); the American Fuel & Petrochemical Manufacturers
(AFPM); the Association of American Railroads (AAR); BNSF Railway
Company (BNSF); Indorama Ventures (Indorama); Industrial Minerals
Association--North America (IMA-NA); National Grain and Feed
Association (NGFA); Olin Corporation (Olin); Union Pacific Railroad
Company (UP); and USDA.
---------------------------------------------------------------------------
After considering the comments filed in response to the NPRM and
SNPRM and information received in meetings with stakeholders, the Board
will adopt its proposal in Docket No. EP 755 as modified in the SNPRM.
The Board will also terminate the proceeding in Docket No. EP 665 (Sub-
No. 2).\5\
---------------------------------------------------------------------------
\5\ These proceedings are not consolidated. A single decision is
being issued for administrative convenience.
---------------------------------------------------------------------------
To the extent the discussion below does not revisit issues raised
in comments on the NPRM, the SNPRM contains the Board's analysis of
those issues.
Background
In the ICC Termination Act of 1995 (ICCTA), Congress directed the
Board to ``establish a simplified and expedited method for determining
the reasonableness of challenged rail rates in those cases in which a
full stand-alone cost [(SAC)] presentation is too costly, given the
value of the case.'' Public Law 104-88, 109 Stat. 803, 810. In the
Surface Transportation Board Reauthorization Act of 2015 (STB
Reauthorization Act), Public Law 114-110, 129 Stat. 2228, Congress
revised the text of this requirement so that it currently reads:
``[t]he Board shall maintain 1 or more simplified and expedited methods
for determining the reasonableness of challenged rates in those cases
in which a full [SAC] presentation is too costly, given the value of
the case.'' 49 U.S.C. 10701(d)(3) (emphasis added). In addition,
section 11 of the STB Reauthorization Act modified 49 U.S.C. 10704(d)
to require that the Board ``maintain procedures to ensure the
expeditious handling of challenges to the reasonableness of railroad
rates.'' \6\ More generally, the rail transportation policy (RTP) at 49
U.S.C. 10101 states that, in regulating the railroad industry, it is
the policy of the United States Government to, among other things,
``provide for the expeditious handling and resolution of all
proceedings required or permitted to be brought under this part.'' 49
U.S.C. 10101(15).
---------------------------------------------------------------------------
\6\ Prior to the enactment of the STB Reauthorization Act, Sec.
10704(d) began with a sentence stating that, ``[w]ithin 9 months
after January 1, 1996, the Board shall establish procedures to
ensure expeditious handling of challenges to the reasonableness of
railroad rates.'' See, e.g., 49 U.S.C. 10704(d) (2014).
---------------------------------------------------------------------------
In 1996, the Board adopted a simplified methodology, known as
Three-Benchmark, which determines the reasonableness of a challenged
rate using three benchmark figures. Rate Guidelines--Non-Coal Proc., 1
S.T.B. 1004 (1996), pet. to reopen denied, 2 S.T.B. 619 (1997), appeal
dismissed sub nom. Ass'n of Am. R.Rs. v. STB, 146 F.3d 942 (D.C. Cir.
1998). A decade passed without any complainant bringing a case under
that methodology. In 2007, the Board modified the Three-Benchmark
methodology and also created another simplified methodology, known as
Simplified-SAC, which determines whether a captive shipper is being
forced to cross-subsidize other parts of the railroad's network. See
Simplified Standards for Rail Rate Cases, EP 646 (Sub-No. 1) (STB
served Sept. 5, 2007), aff'd sub nom. CSX Transp., Inc. v. STB, 568
F.3d 236 (D.C. Cir. 2009), vacated in part on reh'g, 584 F.3d 1076
(D.C. Cir. 2009). In 2013, the Board increased the relief available
under the Three-Benchmark methodology and removed the relief limit on
the Simplified-SAC methodology, among other things. See Rate Regul.
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).
Notwithstanding the Board's efforts to improve its rate review
methodologies and make them more accessible, only a few Three-Benchmark
cases have ever been brought to the Board, and no complaint has been
litigated to completion under the Simplified-SAC methodology.
The Board has recognized that, for smaller disputes, the litigation
costs required to bring a case under the Board's existing rate
reasonableness methodologies can quickly exceed the value of the case.
Expanding Access to Rate Relief, EP 665 (Sub-No. 2), slip op. at 10
(STB served Aug. 31, 2016). As the Board stated in Simplified
Standards, ``[f]or some shippers who have smaller disputes with a
carrier, even [Simplified-SAC] would be too expensive, given the
smaller value of their cases. These shippers must also have an avenue
to pursue relief.'' Simplified Standards, EP 646 (Sub-No. 1), slip op.
at 16. Along similar lines, as the Board has previously stated,
simplified procedures ``enable the affected shippers to avail
themselves of their statutory right to challenge rates charged on
captive rail traffic regardless of the size of the complaint.'' Non-
Coal Proc., 1 S.T.B. at 1057.\7\
---------------------------------------------------------------------------
\7\ See also Calculation of Variable Costs in Rate Compl. Proc.
Involving Non-Class I R.Rs., 6 S.T.B. 798, 803 & n.19 (2003) (``[W]e
have adopted simplified evidentiary procedures for adjudicating rate
reasonableness in those cases where more sophisticated procedures
are too costly or burdensome, `to ensure that no shipper is
foreclosed from exercising its statutory right to challenge the
reasonableness of rates charged on its captive traffic.''' (quoting
Non-Coal Proc., 1 S.T.B. at 1008)); Mkt. Dominance Determinations--
Prod. & Geographic Competition, 3 S.T.B. 937, 949 (1998) (excluding
product and geographic competition from consideration in market
dominance determinations so as to ``remove a substantial obstacle to
the shippers' ability to exercise their statutory rights'').
---------------------------------------------------------------------------
In public comments, shippers and other interested parties have
repeatedly stated that the Board's current options for challenging the
reasonableness of rates do not meet their need for expeditious
resolution of disputes at a reasonable cost.\8\ Moreover, because a
contract rate may not be challenged before the Board, 49 U.S.C.
10709(c)(1), a party to a contract that is seeking a lower rate may
shift from contract rates to tariff rates before bringing a rate case,
and tariff rates may be higher than prior
[[Page 301]]
contract rates.\9\ That factor gives complainants a strong interest in
having a rate case decided quickly, from start to finish.
---------------------------------------------------------------------------
\8\ See, e.g., Alliance for Rail Competition Opening Comment 22,
June 26, 2014, Rail Transp. of Grain, Rate Regul. Rev., EP 665 (Sub-
No. 1) (stating that the Three-Benchmark methodology is too costly
and complex for grain shippers and producers in its current form);
WCTL Opening Comment 74-76, Oct. 23, 2012, Rate Regulation Reforms,
EP 715 (the cost and complexity of the Simplified-SAC methodology
discourage its use); Oversight of the STB Reauthorization Act of
2015 Before the Subcomm. on R.Rs., Pipelines, & Hazardous Materials
of the H. Comm. on Transp. & Infrastructure, 115th Cong. (2018)
(letter from Chris Jahn, then-President of The Fertilizer Institute,
submitted for the record) (due to the time and expense needed to
pursue a rate case, it ``does not work'' for most complainants).
\9\ As an example, a recent rate proceeding involved a
complainant that had been served pursuant to contracts for many
years and then filed its complaint as soon as its contract expired.
See Consumers Energy Co. Compl. 4-5, Jan. 13, 2015, Consumers Energy
Co. v. CSX Transp., Inc., NOR 42142; see also Occidental Chem. Corp.
Comments 2-4, Oct. 23, 2012, Rate Regul. Reforms, EP 715 (paying the
tariff rate for extended periods of time while a rate case is
litigated--which can add millions of dollars in costs beyond the
direct costs of litigation--undermines the utility of a rate
challenge, especially if the carrier requires that all rates bundled
with the challenged rate also shift to tariff during the pendency of
the case); PPG Indus., Inc. Comments 3-4, Oct. 23, 2012, Rate Regul.
Reforms, EP 715 (noting the effect of bundling and stating that
tariff premium could reach $20 million per year of rate litigation).
The latter two filings are cited here simply to illustrate the need
for expedited rate reasonableness procedures, not to indicate that
the Board takes any position in this proceeding--one way or
another--on the appropriateness of rate bundling.
---------------------------------------------------------------------------
Accordingly, the Board has continued to explore ideas to improve
the accessibility of rate relief. For example, in Expanding Access to
Rate Relief, Docket No. EP 665 (Sub-No. 2), the Board sought comment on
procedures relying on comparison groups that could comprise a new rate
reasonableness methodology for use in very small disputes. The initial
comments on that proposal were universally negative. But among the
comments submitted in Docket No. EP 665 (Sub-No. 2), the Board received
a suggestion from USDA that the Board consider procedural limitations
to streamline and expedite its rate reasonableness review as an
alternative to substantive limitations. See USDA Reply Comment 5-6,
Dec. 19, 2016, Expanding Access to Rate Relief, EP 665 (Sub-No. 2).
USDA specifically recommended a short procedural timeline as a means to
make rate reasonableness review accessible for smaller disputes. See
id. To implement this recommendation, USDA suggested that the Board
adopt a final offer procedure whereby parties would submit market
dominance and rate reasonableness evidence in a single package offer.
See id. at 6-7.
The Board already uses a final offer procedure as part of the
Three-Benchmark methodology, although it is only one part of the rate
reasonableness approach as opposed to providing the overall framework,
as the Board is adopting here.\10\ One of the benchmarks compares the
markup paid by the challenged traffic to the average markup assessed on
similar traffic. See, e.g., Rate Regul. Reforms, EP 715, slip op. at
11. To improve the efficiency of this part of the Three-Benchmark
methodology and ``enable a prompt, expedited resolution of the
comparison group selection,'' the Board requires each party to submit
its final offer comparison group simultaneously, and the Board chooses
one of those groups without modification. See Simplified Standards, EP
646 (Sub-No. 1), slip op. at 18.
---------------------------------------------------------------------------
\10\ The Three-Benchmark methodology also includes more
procedural steps and a longer timeline than the FORR procedure
adopted here. See 49 CFR 1111.10(a)(2).
---------------------------------------------------------------------------
Although the Board may not require arbitration of rate disputes
under current law,\11\ and is not doing so here, the benefits of final
offer procedures used in other settings offer support and background
for the Board's rule adopted here. For example, final offer procedures
are used in commercial settings, including the resolution of wage
disputes in Major League Baseball, and final offer arbitration is
therefore sometimes referred to as ``baseball arbitration.'' See, e.g.,
Josh Chetwynd, Play Ball? An Analysis of Final-Offer Arb., Its Use in
Major League Baseball, & Its Potential Applicability to Eur. Football
Wage & Transfer Disps., 20 Marq. Sports L. Rev. 109 (2009) (noting the
final offer procedure ``can lead to a win-win situation as it spurs
negotiated settlement at a very high rate''); see also Michael Carrell
& Richard Bales, Considering Final Offer Arb. to Resolve Pub. Sector
Impasses in Times of Concession Bargaining, 28 Ohio St. J. on Disp.
Resol. 1, 3, 16, 23-24 (2012) (noting that 14 states had codified some
form of final offer arbitration for certain labor disputes involving
public sector employees and noting that the procedure ``encourages the
parties to negotiate toward middle ground rather than staking out polar
positions'' and ``encourages the parties to settle before
arbitration'').
---------------------------------------------------------------------------
\11\ See Arb.--Various Matters, EP 586, slip op. at 3 n.7 (STB
served Sept. 20, 2001); see also 49 U.S.C. 10704(a)(1); 49 U.S.C.
11704(c)(2). The Board has had a voluntary arbitration process in
place for more than 20 years, and section 13 of the STB
Reauthorization Act required adjustments to this process (including
the addition of rate disputes to the types of matters eligible for
arbitration), but to date parties have not agreed to arbitration of
any dispute brought before the Board. See Arb. of Certain Disps., 2
S.T.B. 564 (1997) (adopting voluntary arbitration procedures at 49
CFR part 1108); Revisions to Arb. Proc., EP 730 (STB served Sept.
30, 2016) (making adjustments required by STB Reauthorization Act);
Joint Pet. for Rulemaking to Establish a Voluntary Arb. Program for
Small Rate Disps. (Arbitration NPRM), EP 765, slip op. at 2-3 (STB
served Nov. 15, 2021) (describing the Board's voluntary arbitration
programs). In addition to its recommendation for a final offer
procedure that would culminate in a decision by the Board, the RRTF
recommended legislation that would permit mandatory arbitration of
small rate cases. See RRTF Rep. 14-15.
---------------------------------------------------------------------------
Similarly, AAR itself provides its members a final offer procedure
for car hire arbitration. See Circular No. OT-10, Code of Car Hire Rule
25, <a href="https://www.railinc.com/rportal/documents/18/260773/OT-10.pdf">https://www.railinc.com/rportal/documents/18/260773/OT-10.pdf</a>. The
Board described that final offer procedure as ``integral'' to its
decision to deregulate car hire rates. See Joint Pet. for Rulemaking on
R.R. Car Hire Comp., EP 334 (Sub-No. 8) et al., slip op. at 1 (STB
served Apr. 22, 1997).
Finally in this regard, the Committee for a Study of Freight Rail
Transportation and Regulation of the Transportation Research Board (TRB
Committee) described the benefits of adopting ``an independent
arbitration process similar to the one long used for resolving rate
disputes in Canada.'' Nat'l Acads. of Sciences, Eng'g, & Med.,
Modernizing Freight Rail Regul. (TRB Report) (2015), at 7, 136-40,
<a href="http://nap.edu/21759">http://nap.edu/21759</a>.\12\ In particular, the TRB Committee recommended
``a final-offer rule,'' set on a ``strict time limit,'' whereby ``each
side offers its evidence, arguments, and possibly a changed rate or
other remedy in a complete and unmodifiable form after a brief
hearing.'' TRB Rep. 211-12. According to the TRB Report, adoption of
such a procedure could enhance complainants' access to rate
reasonableness protections, while expediting dispute resolution and
encouraging settlements. Id. at 212.
---------------------------------------------------------------------------
\12\ In the process used by Canadian regulators, final offer
procedures are administered by an outside arbitrator or panel of
arbitrators. In Canada, a complainant may submit its rate dispute to
the Canadian Transportation Agency, which refers the matter to an
arbitrator or a panel of arbitrators. Canada Transp. Act, S.C. 1996,
c. 10, as amended, Sec. Sec. 161(1), 162(1) (Can.). The Canadian
statute establishes a two-tiered structure: if the matter involves
freight charges of more than $2 million CAD (subject to an inflation
adjustment), a 60-day procedure applies, and if the matter involves
freight charges of $2 million CAD or less (subject to an inflation
adjustment), a 30-day procedure applies. Id. Sec. Sec. 164.1,
165(2)(b). Among other things, the 60-day procedure allows the
parties to direct interrogatories to one another, and the arbitrator
may request written filings beyond the final offers and information
initially submitted in support of final offers. See id. Sec. Sec.
163(4), 164(1). In the 30-day procedure, there is no discovery, and
the arbitrator may request oral presentations from the parties but
may not request written submissions beyond the final offers and
replies. See id. Sec. 164.1. The arbitrator's decision is issued
within 60 days after the matter was submitted for arbitration, or 30
days if the further expedited procedure applies. Id. Sec.
165(2)(b). Any resulting rate prescription is limited to two years,
unless the parties agree to a different period. See id. Sec.
165(2)(c).
---------------------------------------------------------------------------
The RRTF agreed that a final offer process--with the decision being
made by the Board rather than an arbitrator--could be an effective way
to implement procedural limitations, which would improve access to rate
relief. RRTF Rep. 16.
Taking into account these recommendations, the Board's NPRM
proposed to adopt a FORR process with
[[Page 302]]
the following primary features. As proposed, FORR would allow limited
discovery, with no litigation over discovery disputes; FORR could be
used only if the complainant elected to use the streamlined market
dominance approach proposed (and since adopted) in Docket No. EP 756,
Market Dominance Streamlined Approach; \13\ and the procedural schedule
would be brief, with a Board decision issued within 135 days after
filing of the complaint. See NPRM, EP 755 et al., slip op. at 8-10, 13-
14.
---------------------------------------------------------------------------
\13\ Mkt. Dominance Streamlined Approach, EP 756 (STB served
Aug. 3, 2020) (adopting final rule).
---------------------------------------------------------------------------
Parties would simultaneously submit their market dominance
presentations, final offers, analyses addressing the reasonableness of
the challenged rate and support for the rate in the party's offer, and
explanations of the methodologies used and how they comply with the
decisional criteria set forth in the NPRM. NPRM, EP 755 et al., slip
op. at 12. Parties would next submit simultaneous replies. Id.
The complainant would bear the burden of proof to demonstrate that
(i) the defendant carrier has market dominance over the transportation
to which the rate applies, and (ii) the challenged rate is
unreasonable. NPRM, EP 755 et al., slip op. at 12-13; see also 49
U.S.C. 10701(d)(1), 10704(a)(1), 11704(b); Union Pac. R.R.--Pet. for
Declaratory Ord., FD 35504, slip op. at 2 (STB served Oct. 10, 2014).
If the Board were to find that the complainant's market dominance
presentation and rate reasonableness analysis demonstrate that the
defendant carrier has market dominance over the transportation to which
the rate applies and that the challenged rate is unreasonable, the
Board would then choose between the parties' final offers. In making
the rate reasonableness finding and choosing between the offers, the
Board would take into account the criteria specified in the NPRM: the
RTP, the Long-Cannon factors in 49 U.S.C. 10701(d)(2), and appropriate
economic principles. See NPRM, EP 755 et al., slip op. at 10-13.
The Board proposed a relief cap of $4 million, indexed annually
using the Producer Price Index, consistent with the potential relief
afforded under the Three-Benchmark methodology. See NPRM, EP 755 et
al., slip op. at 16.
The Board also sought additional comments on Docket No. EP 665
(Sub-No. 2), including whether to close that docket. NPRM, EP 755 et
al., slip op. at 17.
In the SNPRM, the Board made the following changes to its FORR
proposal: removing the use of adverse inferences and instead adopting a
process for motions to compel discovery; including mandatory mediation
in FORR cases; requiring only the complainant to submit market
dominance evidence on opening; allowing complainants to choose between
streamlined and non-streamlined market dominance approaches; and
extending the proposed procedural schedule to accommodate motions to
compel, mandatory mediation, and (in cases where it is selected) non-
streamlined market dominance. SNPRM, EP 755 et al., slip op. at 35-36,
38-42. The SNPRM also provided further information regarding FORR's
decisional criteria. Id. at 26-27.
Also, on November 25, 2020, the Board instituted a rulemaking
proceeding to consider a proposal by Canadian National Railway Company,
CSX Transportation, Inc., The Kansas City Southern Railway Company,
Norfolk Southern Railway Company, and UP to establish a new, voluntary
arbitration program for small rate disputes. Joint Pet. for Rulemaking
to Establish a Voluntary Arb. Program for Small Rate Disps., EP 765
(STB served Nov. 25, 2020).\14\ In a decision served concurrently with
the SNPRM, the Board proposed to adopt a form of such an arbitration
program. See Arbitration NPRM. Concurrently with this decision, the
Board is issuing a decision in that proceeding that adopts final rules
implementing a new small rate case arbitration program. See Joint Pet.
for Rulemaking to Establish a Voluntary Arb. Program for Small Rate
Disps. (Arbitration Final Rule), EP 765 (STB served Dec. 19, 2022). As
part of that program, the Board will allow carriers to be exempt from
rates challenges under the FORR process if all Class I carriers join
the arbitration program within the specified time period and the
carriers otherwise satisfy all requirements for exemption established
in the Arbitration Final Rule.
---------------------------------------------------------------------------
\14\ Canadian Pacific subsequently submitted a letter stating
that it ``supports the effort to find a workable, reasonable,
accessible arbitration program for small rate cases, and would
participate in such a pilot program.'' CP Letter, Jan. 25, 2021,
Joint Pet. for Rulemaking to Establish a Voluntary Arb. Program for
Small Rate Disps., EP 765.
---------------------------------------------------------------------------
Docket No. EP 755: Final Rule
After considering the filed comments and information received in
meetings with stakeholders, the Board will adopt the rule proposed in
the SNPRM, with one change addressed below in Part III.B. In Part I,
the Board addresses comments on the purpose of the rule. In Part II,
the Board addresses comments regarding its authority to adopt a final
offer procedure. In Part III, the Board addresses other arguments
against the FORR procedure. In Part IV, the Board addresses the review
criteria for FORR cases. In Part V, the Board addresses discovery and
procedural schedule issues. In Part VI, the Board addresses market
dominance issues. In Part VII, the Board addresses the relief cap.
Finally, in Part VIII, the Board addresses other miscellaneous issues.
The text of the final rule is below.
Part I--Purpose of the Rule
The purpose of this rule is to satisfy the statutory requirement
that, if the Board determines that a rail carrier has market dominance
over the transportation to which a particular rate applies, the rate
established by such carrier for such transportation must be reasonable.
See 49 U.S.C. 10701(d)(1).\15\ A shipper's ability to challenge a rate
subject to market dominance is frustrated where the litigation costs of
the Board's available processes outweigh the benefits of pursuing a
case. See Non-Coal Proc., 1 S.T.B. at 1049. Furthermore, in addition to
litigation costs, a shipper must also take into account the risk
associated with the uncertainty of receiving relief and the time it may
take to obtain a decision. Because even the Board's smaller rate
processes raise complexity, cost and duration challenges, shippers
facing small rate disputes continue to lack meaningful access to the
Board's existing rate reasonableness procedures. NPRM, EP 755 et al.,
slip op. at 3. Along with the Board's arbitration procedures newly
adopted in Docket No. EP 765, FORR represents one possible solution for
providing cost-effective rate relief in small cases. The Board expects
that FORR's procedural limitations should lower the cost of litigating
rate disputes, providing complainants who otherwise might be deterred
from bringing smaller rate cases under one of the Board's existing
processes an additional and more accessible avenue for rate
reasonableness review by the Board. NPRM, EP 755 et al., slip op. at 7.
Reduced litigation costs should also make it more feasible for
complainants to prove meritorious cases, while a final offer selection
process would discourage
[[Page 303]]
extreme positions and may facilitate settlement. Id. In addition,
although the Board has provided in the arbitration rulemaking that
Class I carriers may be exempt from FORR procedures under certain
conditions, that exemption is not guaranteed to enter into effect. See
Arbitration Final Rule, EP 765, slip. op. at 7. And even if the
arbitration program and FORR exemption take effect, FORR will serve as
the alternative regulatory process in the event that a carrier
withdraws from the arbitration program (which carriers will have the
right to do if there is a change in law). Therefore, FORR remains an
important long-term measure even with the potential temporary exemption
established in the arbitration rulemaking.
---------------------------------------------------------------------------
\15\ See also 49 U.S.C. 10701(d)(3) (requiring the Board to
``maintain 1 or more simplified and expedited methods for
determining the reasonableness of challenged rates in those cases in
which a full stand-alone cost presentation is too costly, given the
value of the case''); 49 U.S.C. 10704(d)(1) (requiring the Board to
``maintain procedures to ensure the expeditious handling of
challenges to the reasonableness of railroad rates,'' including
``appropriate measures for avoiding delay in the discovery and
evidentiary phases of such proceedings'').
---------------------------------------------------------------------------
AAR continues to question the need for a new procedure to resolve
small rate disputes. (See AAR SNPRM Comment 17-18.) \16\ Shipper
interests uniformly indicate that there is a need for such a procedure.
(AFPM SNPRM Comment 2-3; Coalition Ass'ns SNPRM Comment 1-2; IMA-NA
SNPRM Comment 2-3; Indorama SNPRM Comment 2-3; NGFA SNPRM Comment 2;
Olin SNPRM Comment 4-6.)
---------------------------------------------------------------------------
\16\ Unless otherwise specified, citations to the record are to
the record in Docket No. EP 755.
---------------------------------------------------------------------------
AAR argues that the Board should not ``accept at face value
unsupported claims from shippers that they have meritorious rate claims
they have chosen not to bring.'' (AAR SNPRM Comment 17-18.) Therefore,
according to AAR, the only relevant evidence is the absence of small
rate cases, which ``could be evidence that tariff-based rates are
generally reasonable.'' (See id. at 17.)
As it did in its comments on the NPRM, AAR is again suggesting
that, in order to adopt a process for determining whether or not
specific rates are unreasonable, the Board must already have evidence
that rates as a general matter are unreasonable. (See AAR NPRM Comment
24.) But as the SNPRM pointed out, AAR's reasoning is circular and
would prevent the Board from carrying out the statutory mandate to
determine the reasonableness of rates. See SNPRM, EP 755 et al., slip
op. at 10-11. AAR argues that the Board should disregard shippers'
expressions of concern about the existing rate reasonableness processes
unless an individually identified shipper presents a supported claim
that it has a meritorious rate case it has chosen not to bring. (See
AAR SNPRM Comment 17-18.) AAR does not attempt to explain how such a
shipper would prove its rate case meritorious.
Contrary to AAR's argument, the problem addressed by this rule is
illustrated by the lack of small rate cases combined with repeated
shipper statements that they need rate relief but find the Board's
existing processes too complex and expensive. NPRM, EP 755 et al., slip
op. at 2-3; see also id. at 3 n.5; SNPRM, EP 755 et al., slip op. at
10. Comments from shipper interests in this proceeding bear out that
problem. (See, e.g., Farmers Union NPRM Comment 5-9 (explaining the
challenges faced by customers with small rate disputes, as well as
citations to evidence of steadily rising rail transportation rates for
agricultural commodities in recent decades); \17\ NGFA NPRM Comment 5-
6; USDA NPRM Comment 2-3.)
---------------------------------------------------------------------------
\17\ Notwithstanding these widespread rate increases, no rate
case addressing rail transportation of agricultural commodities has
been filed with the Board or the ICC since McCarty Farms, which
commenced in 1981. See McCarty Farms, Inc. v. Burlington N., Inc., 2
S.T.B. 460, 462-63 (1997) (denying rate relief after reopening and
remand).
---------------------------------------------------------------------------
Accordingly, the Board finds that FORR will further the RTP goal of
maintaining reasonable rates where there is an absence of effective
competition, see Sec. 10101(6), by providing increased access to rate
reasonableness determinations in small disputes. By facilitating the
determination of rate reasonableness in situations where it may not, in
practice, have been feasible previously, FORR will also foster sound
economic conditions in transportation. See Sec. 10101(5). And FORR's
short timelines will promote expeditious regulatory decisions and
provide for the expeditious handling and resolution of proceedings. See
Sec. 10101(2), (15).
Part II--Authority To Adopt a Final Offer Procedure
AAR renews certain of its arguments that the Board lacks statutory
authority to adopt a final offer procedure under which, having found
the challenged rate unreasonable, the Board must select one of the
parties' offers to be the maximum rate going forward. The Board
disagrees with AAR for the reasons stated in the NPRM, the SNPRM, and
below.
The offer stage of FORR represents an exercise of the Board's
remedial rate prescription authority: ``When the Board, after a full
hearing, decides that a rate'' violates the statute, ``the Board may
prescribe the maximum rate . . . to be followed.'' Sec. 10704(a)(1).
AAR asserts that a final offer procedure exceeds the scope of this
clause, but that argument lacks merit. (See AAR SNPRM Comment 4-9, 11-
12.) The statute authorizes the Board to ``prescribe the maximum rate .
. . to be followed.'' That is precisely what the Board would do under
FORR. ``Prescribe'' means ``[t]o dictate, ordain, or direct; to
establish authoritatively (as a rule or guideline).'' Black's Law
Dictionary (11th ed. 2019). As long as the Board satisfies the criteria
for assessing the reasonableness of rates, choosing among the parties'
offers as to the maximum rate going forward is, by definition,
``establishing authoritatively (as a rule or guideline)'' the maximum
rate to be followed. This aspect of FORR falls within Sec.
10704(a)(1)'s grant of remedial authority.\18\
---------------------------------------------------------------------------
\18\ Because the Board's authority to prescribe rates under FORR
is located in Sec. 10704(a)(1), AAR's contention that Sec.
10701(d)(3) does not expand the scope of that authority is
irrelevant. (AAR SNPRM Comment 5.).
---------------------------------------------------------------------------
Implicit in AAR's argument is the incorrect premise that
``prescribing'' a rate under Sec. 10704(a)(1) cannot occur unless the
Board allows itself discretion in each case to prescribe a rate other
than one a party has proposed. That requirement is absent from Sec.
10704(a)(1), which says nothing about the extent of discretion the
Board can or must permit itself in prescribing a maximum rate. Nor has
AAR identified such a requirement in any other provision, as discussed
in more detail below. And such a requirement would contradict
established Board practice. The Board's SAC test has long included a
procedure for prescribing the maximum rate to be followed. This
procedure, the Maximum Markup Methodology (MMM), applies mechanically,
with the Board exercising no discretion as to its application in an
individual SAC case. See Major Issues in Rail Rate Cases, EP 657 (Sub-
No. 1), slip op. at 14-15 (STB served Oct. 30, 2006), aff'd sub nom.
BNSF Ry. v. STB, 526 F.3d 770, 777-81 (D.C. Cir. 2008). At the offer
selection phase of a FORR case, by contrast, the Board would exercise
discretion in selecting between the offers. The Board's well-
established use the of MMM, therefore, contradicts AAR's contentions
that FORR is unlawful due to the supposedly insufficient discretion it
affords the Board. (See, e.g., AAR SNPRM Comment 4-6, 7-9; see also UP
SNPRM Comment 2-3.) \19\
---------------------------------------------------------------------------
\19\ AAR repeats its argument that ``there is no basis for using
[final offer procedures] with regard to the Board's `legislative
function' of setting rates prospectively.'' (AAR SNPRM Comment 9.)
AAR states that ``[t]he Board has identified no authority suggesting
that final-offer procedures can be used by agencies as a way of
legislating or rulemaking.'' (Id. at 10.) In making this argument,
AAR cites a footnote in the SNPRM expressly identifying the
authority that AAR now claims has not been identified. See SNPRM, EP
755 et al., slip op. at 16 n.30. AAR refers to legislating or
rulemaking generally, but the agency function at issue here is a
specific form of quasi-legislative authority: the prospective
setting of rates. AAR does not deny that Sec. Sec. 10701(d)(3) and
10704 authorize the Board to develop methods for performing this
quasi-legislative function.
---------------------------------------------------------------------------
[[Page 304]]
AAR reiterates its reliance on the magistrate judge's opinion in
Stone v. U.S. Forest Serv., No. Civ. 03-586-JE, 2004 WL 1631321 (D. Or.
July 16, 2004). That decision invalidated an agency's use of final
offer procedures to determine the fair market value of a parcel of
property because, among other reasons, the governing statute ``d[id]
not command the agency to select the `better' of the two appraisals,''
and the fair market value might have been ``somewhere in between.'' Id.
at *7.
The nonbinding opinion in Stone, which cites no authority and
devotes just a single paragraph to the relevant issue, is
distinguishable for several reasons. Most importantly, the operative
statute specified a particular, highly detailed method for assessing
fair market value--one that was arguably incompatible with a final
offer approach. See 16 U.S.C. 544g(e)(2) (requiring ``apprais[al] in
conformity with the Uniform Appraisal Standards for Federal Land
Acquisitions'').\20\ The Board's statutes, by contrast, authorize the
agency in general terms to devise methods for calculating the
reasonableness of a rate and prescribing the future rate to be
followed. The governing provisions do not specify a particular method
of calculation. SNPRM, EP 755 et al., slip op. at 16 n.28; see 49
U.S.C. 10701(d)(3), 10704(a)(1). Second, the object of the Stone
agency's calculations--the fair market value of an item of real
estate--was a relatively objective fact that could be determined
independently of the agency's analysis. In the present context,
however, there is no ``maximum rate to be followed'' that exists
independently of a Board determination in a rate reasonableness case;
although the Board must act rationally and obey its statutes and
regulations in determining the maximum rate to be followed, that
determination is not the kind that can be assessed for accuracy with
reference to the external world. Finally, as explained in the SNPRM,
Stone also involved a second rationale: the obvious inequities that
resulted from the fact that the agency was both the adjudicator and the
purchasing party. See SNPRM, EP 755 et al., slip op. at 13-14. That
significant factor is wholly absent here.
---------------------------------------------------------------------------
\20\ Available at <a href="http://www.usdoj.gov/enrd/land-ack/">http://www.usdoj.gov/enrd/land-ack/</a>.
---------------------------------------------------------------------------
As in its previous comments, AAR assumes that a maximum reasonable
rate exists in the abstract, outside of any Board process used to
determine the maximum reasonable rate. (See AAR SNPRM Comment 8.)
Proceeding from this assumption, AAR posits a ``common situation'' in
which this abstract ideal of a maximum reasonable rate falls between
the litigants' positions. (See id.) Finally, based on the problem it
has contrived, AAR concludes that FORR would not involve the exercise
of independent judgment. (See id. at 7-9; see also UP SNPRM Comment 2
(making similar arguments).) As the SNPRM pointed out, however, the
idea that the Board must determine the reasonableness of rail rates
``in the abstract'' was rejected in CSX Transportation, Inc. v. STB,
568 F.3d at 242, vacated in part on reh'g, 584 F.3d 1076 (D.C. Cir.
2009). SNPRM, EP 755 et al., slip op. at 16. AAR's theory seems to be
that the ``considerations'' referenced in the statute--including
revenue adequacy, the Long-Cannon factors, and the RTP--themselves
dictate a particular methodology for how the prescribed maximum rate
should be calculated, and in individual cases, the Board measures the
challenged rate against the ``maximum reasonable rate'' resulting from
the statute. (See AAR SNPRM Comment 4, 8-9.) But as noted above, the
statute supplies only general goals, not methodologies (unlike, for
example, the statute in Stone that required specific ways of
calculating a real estate appraisal). Instead, the ICC and the Board
have developed processes that are applied in individual cases to
determine a maximum rate in a manner designed to achieve those goals--
as in FORR.\21\ Again, AAR identifies no statutory provision that would
prevent the Board from committing in advance not to prescribe a maximum
rate other than one identified by the parties. Nor does AAR
substantiate any view that such discretion is inherently necessary for
an agency adjudication to be valid.
---------------------------------------------------------------------------
\21\ UP argues that FORR is distinguishable from the Board's
existing rate reasonableness processes because those processes
``were designed to implement statutory standards.'' (UP SNPRM
Comment 3.) But as explained in the NPRM, the SNPRM, and this final
rule, FORR is also ``designed to implement statutory standards.''
See, e.g., NPRM, EP 755 et al., slip op. at 10-11; SNPRM, EP 755 et
al., slip op. at 12-15, 26-29.
---------------------------------------------------------------------------
AAR argues that because the statute does not mention the parties'
pleadings among these considerations, the Board cannot adopt one
party's position. (See AAR SNPRM Comment 8.) But AAR's argument leads
to the absurd consequence that, in any type of adjudication where one
party's position is clearly superior, the adjudicator cannot adopt that
position in its entirety unless Congress has expressly identified the
parties' pleadings as a source on which the adjudicator may rely.
The SNPRM pointed out similarities between FORR and the Three-
Benchmark test with respect to decision-making structures and the
agency's exercise of discretion. See SNPRM, EP 755 et al., slip op. at
15-16. AAR dismisses this comparison, stating that a final offer
procedure is only one part of the Three-Benchmark test, whereas it
provides the overall framework of FORR. (See AAR SNPRM Comment 8);
SNPRM, EP 755 et al., slip op. at 5. AAR ignores the fact that, apart
from evidence regarding ``other relevant factors,'' which is optional,
the Board's Three-Benchmark test comprises a final offer process and a
formula--an approach in which the Board exercises its discretion in
deciding between the parties' comparison groups under a final offer
structure. See Union Pac. R.R. v. STB, 628 F.3d 597, 601 (D.C. Cir.
2010) (``Since the revenue need adjustment factor is derived from
static figures published annually by the Board, the Three Benchmark
framework's reasonableness determination generally turns on the Board's
selection of a comparison group.''); SNPRM, EP 755 et al., slip op. at
15.
UP similarly contends that Three-Benchmark is distinguishable from
FORR in terms of the Board's exercise of discretion because parties to
a Three-Benchmark case can choose to submit evidence regarding ``other
relevant factors.'' (See UP SNPRM Comment 3.) Regarding the point that
``other relevant factors'' evidence is optional, UP argues that that is
``consistent with the function of a safety valve.'' (See id.) UP
erroneously conflates a decision made by parties--whether to submit
evidence regarding ``other relevant factors'' in a Three-Benchmark
case--with its argument about the scope of the Board's decision-making.
UP does not deny that, in any given Three-Benchmark proceeding, parties
might present the Board with no ``other relevant factors'' evidence. In
that situation, the Board's exercise of discretion in the context of
that individual case is no greater than it would be in a FORR case. See
Union Pac. R.R., 628 F.3d at 601.
AAR continues to argue that the Board cannot exercise its rate-
prescribing power unless it performs a rate analysis distinct from any
party's pleadings within each case--as opposed to exercising judgment
in establishing the process itself. (See AAR SNPRM Comment 8); cf.
SNPRM, EP 755 et al., slip op. at 15. But again, no such limitation is
apparent in the statute or
[[Page 305]]
anywhere else, and AAR's arguments would also foreclose any Three-
Benchmark case in which no ``other relevant factors'' are proposed. In
such a case, the judgment in its entirety would consist of selecting a
comparison group via final offer and applying the revenue need
adjustment formula. The Three-Benchmark test has been affirmed on
judicial review, notwithstanding the restrictive definition of agency
adjudication that AAR erroneously proposes here. See CSX Transp., Inc.
v. STB, 568 F.3d at 242.
Indeed, AAR's theory of adjudication, taken to its logical
endpoint, would preclude the Board from having any pre-defined
processes. In an individual SAC case, for example, the result produced
by the SAC process and Board precedent may be above or below the
abstract ideal of a maximum rate--which AAR described in its NPRM
comments as the rate that ``best'' achieves the statutory objectives.
(AAR NPRM Comment 12; see also UP SNPRM Comment 2 (making a similar
assumption that there must be an abstract ``actual maximum lawful
rate'' that exists outside of any process used by the Board to
determine the maximum reasonable rate).) But Congress expressly
required the Board to create multiple rate reasonableness processes--
which, by definition, could produce rates above or below AAR's
hypothesized single ``best'' maximum rate. See Sec. Sec. 10701(d)(3),
10704(a)(1).
According to AAR, Sec. 10707(c) ``charge(s)'' the Board with
determining whether a challenged rate exceeds ``a reasonable maximum
for that transportation.'' (AAR SNPRM Comment 12.) AAR argues that FORR
does not permit the Board to bring its own independent judgment to bear
in determining what ``a reasonable maximum'' rate would be and
therefore conflicts with this provision. (See id.) This argument merely
echoes AAR's other faulty arguments regarding ``independent judgment''
and is incorrect for the reasons stated above and in the SNPRM.
Moreover, it is far from clear that Sec. 10707(c) ``charge(s)'' the
Board with anything. The statutory language partially quoted by AAR
appears to delineate between the Board's determinations of market
dominance and rate reasonableness, rather than establishing any
directive related to rate reasonableness determinations.\22\ Statutory
structure supports this interpretation, as Sec. 10707 is the provision
in which Congress addressed market dominance rather than rate
reasonableness. See, e.g., Act of Oct. 17, 1978, Public Law 95-473, 92
Stat. 1337, 1382-83 (1978) (splitting Sec. 10709--later renumbered as
Sec. 10707--from the statute's rate reasonableness provision and
giving it the heading ``Determination of market dominance in rail
carrier rate proceedings''). In any event, even if Sec. 10707(c) could
be read to govern processes beyond the market-dominance determination,
the statute can at most be read to bear on the Board's determination of
whether a challenged rate is reasonable; the statute's text in no way
limits the Board's separate authority under Sec. 10704(a)(1) to
prescribe a maximum rate to be followed.
---------------------------------------------------------------------------
\22\ See Sec. 10707(c) (``When the Board finds in any
proceeding that a rail carrier proposing or defending a rate for
transportation has market dominance over the transportation to which
the rate applies, it may then determine that rate to be unreasonable
if it exceeds a reasonable maximum for that transportation. However,
a finding of market dominance does not establish a presumption that
the proposed rate exceeds a reasonable maximum.'').
---------------------------------------------------------------------------
In the SNPRM, the Board rejected UP's claim that FORR would limit
the Board's exercise of its statutory authority. Instead, as the SNPRM
pointed out, FORR facilitates the Board's exercise of that authority by
establishing a new process for doing so, thereby providing an
additional avenue for shippers with smaller rate disputes to seek
relief from rates that would otherwise go unchallenged. See SNPRM, EP
755 et al., slip op. at 15. The SNPRM further pointed out that, even if
the Board could be said to be using something less than its
congressionally delegated authority through FORR (which it is not), the
agency may choose to act within a narrower range than Congress
authorized. Id. (citing Midtec Paper Corp. v. Chi. & N.W. Transp. Co.,
3 I.C.C.2d 171, 181 (1986), aff'd sub nom. Midtec Paper Corp. v. United
States, 857 F.2d 1487, 1500 (D.C. Cir. 1988)).
UP now tries to distinguish Midtec, arguing that it involved a
statute ``cast in discretionary terms,'' Midtec, 857 F.2d at 1499, and
did not ``allow the agency to disregard a mandatory duty delegated by
Congress, as the Board would be doing under FORR.'' (UP SNPRM Comment
2.) But on the issue of how to determine whether a rate is reasonable,
it would be difficult to find a plainer example of a statute ``cast in
discretionary terms'' than Sec. 10701(d)(3) (``The Board shall
maintain 1 or more simplified and expedited methods for determining the
reasonableness of challenged rates in those cases in which a full
stand-alone cost presentation is too costly, given the value of the
case.''); see also Sec. 10704(a)(1) (providing in equally
discretionary terms that, ``[w]hen the Board, after a full hearing,
decides that a rate charged or collected by a rail carrier for
transportation subject to the jurisdiction of the Board under this part
. . . does or will violate this part, the Board may prescribe the
maximum rate . . . to be followed''). And UP does not even attempt to
engage with the language of Sec. Sec. 10701(d)(3) or 10704(a)(1) in
support of its claim that, under FORR, the Board would ``disregard a
mandatory duty.'' As explained above in response to AAR, the Board
would carry out its duties under Sec. 10701(d)(3) and under the
authority of Sec. 10704(a)(1) in a FORR case.
Finally, AAR again cites Morgan v. United States, 304 U.S. 1, 12
(1938) for the proposition that ``Congress, in requiring a `full
hearing,' had regard to judicial standards--not in any technical sense
but with respect to those fundamental requirements of fairness which
are of the essence of due process in a proceeding of a judicial
nature.'' (AAR SNPRM Comment 10); see also Sec. 10704(a)(1) (requiring
a ``full hearing'' in a rate reasonableness case). According to AAR, a
judge could not adopt a final offer procedure, so this quote from
Morgan means the Board cannot either. (See AAR SNPRM Comment 10-11.)
Even accepting, for argument's sake, the premise that Congress
lacks power to authorize federal district courts to employ a final
offer process, AAR fails to acknowledge the reality that administrative
agencies enjoy far greater procedural flexibility than do federal
district courts. SNPRM, EP 755 et al., slip op. at 20; see also Sea-
Land Serv., Inc. v. United States, 683 F.2d 491, 495 (D.C. Cir. 1982);
Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633, 644 (1990);
R.R. Comm'n of Tex. v. United States, 765 F.2d 221, 227 (D.C. Cir.
1985). AAR cannot simply assume that procedural devices unavailable in
federal litigation are impermissible before agencies.
That is especially true here, where Congress expressly authorized
and required the agency to develop rate reasonableness methods in open-
ended terms and without any indication that these methods must be
limited to those available to courts. See Sec. Sec. 10701(d)(3),
10704(a)(1); SNPRM, EP 755 et al., slip op. at 20 (noting that AAR has
not identified any language in these or other provisions that restricts
the Board's discretion to set a rate by selecting the best of two
offers after it finds the challenged rate unreasonable and considers
appropriate statutory
[[Page 306]]
principles).\23\ And in any event, as noted in the SNPRM, Morgan
predates the enactment of the Administrative Procedure Act (APA).
SNPRM, EP 755 et al., slip op. at 20. AAR fails to explain how its
proposal to limit agency adjudicatory procedures to a far narrower band
survives the APA and the cases construing it.
---------------------------------------------------------------------------
\23\ Congress, of course, knows how to invoke the procedures
used in courts where it chooses to do so. See, e.g., STB
Reauthorization Act Sec. 11(c) (directing the Board to ``initiate a
proceeding to assess procedures that are available to parties in
litigation before courts to expedite such litigation and the
potential application of any such procedures to rate cases'');
Expediting Rate Cases, EP 733 (STB served Nov. 30, 2017) (carrying
out this direction). It did not do so in either Sec. Sec.
10701(d)(3) or 10704(a)(1).
---------------------------------------------------------------------------
Part III--Other Arguments Against the Forr Procedure
A. Burden of Proof
AAR argues that, even if a FORR complainant bears the burden of
proof as to market dominance and the reasonableness of the challenged
rate, it is improperly relieved of the burden as to FORR's third stage,
the selection of offers. (See AAR SNPRM Comment 12-13; AAR SNPRM Reply
Comment 5.) AAR relies on 5 U.S.C. 556(d), which establishes that,
``[e]xcept as otherwise provided by statute, the proponent of a rule or
order has the burden of proof.'' (See AAR SNPRM Comment 12-13.) Like
AAR, prior Board decisions have relied on section 556(d) as the source
of burden allocation in Board adjudications. See, e.g., NPRM, EP 755 et
al., slip op. at 12-13. Those Board decisions correctly assigned the
burden of proof to parties seeking relief, based on Board precedent
establishing such a burden allocation; that precedent will continue to
apply as a general matter in Board proceedings. See, e.g., Union Pac.
R.R., FD 35504, slip op. at 2; Duke Energy Corp. v. Norfolk S. Ry., 7
S.T.B. 89, 100 (2003). On further reflection, however, the Board
concludes that some of its previous decisions incorrectly identified
section 556(d)--rather than Board precedent--as the source of that
burden allocation. As explained in the SNPRM, sections 556 and 557 of
the APA apply to formal ``trial-type'' hearings, which do not include
the Board's rate reasonableness proceedings. See SNPRM, EP 755 et al.,
slip op. at 19-20; see also, e.g., R.R. Comm'n of Tex., 765 F.2d at 227
(formal adjudication procedures will ``obtain only on the requirement
of a `hearing on the record' ''). And precedent clearly establishes
that the burden allocation language of section 556(d), in particular,
does not apply outside formal ``trial-type'' hearings. E.g., Am.
Trucking Ass'ns v. United States, 344 U.S. 298, 318-20 (1953).
As discussed above and in the SNPRM, Congress has afforded agencies
greater procedural leeway in cases that are not formal ``trial-type''
hearings. See SNPRM, EP 755 et al., slip op. at 19-20; Sea-Land Serv.,
Inc., 683 F.2d at 495; Pension Benefit Guaranty Corp., 496 U.S. at 644.
Here, it is within the Board's procedural discretion to place the
burden on complainants as to the portions of FORR addressing
jurisdiction and culpability--that is, market dominance and the
reasonableness of the challenged rate--but not as to the remedial stage
of offer selection, which is equitable in nature. This allocation of
burden aligns with the allocation in SAC cases, where complainants bear
the burden as to market dominance and the SAC analysis, but not as to
the application of the MMM (described above) to determine the maximum
reasonable rate that the Board will prescribe. See BNSF Ry., 526 F.3d
at 777-81 (discussing the MMM); (Coalition Ass'ns Reply Comment 12
(analogizing similarly to the Board's other rate reasonableness
procedures)). Again, AAR identifies no statutory provision that would
foreclose the Board's choice to structure FORR proceedings in this way.
Adopting the burden allocation proposed in the NPRM and SNPRM will
allow the Board to use a final offer procedure at the third stage of a
FORR case, the benefits of which are described above. See also NPRM, EP
755 et al., slip op. at 4-7 (discussing the benefits of a final offer
procedure). If complainants also bore the burden at the offer selection
stage, no stage of the proceeding would contain a final offer
procedure. Cf. SNPRM, EP 755 et al., slip op. at 22-23 (recognizing
that a FORR defendant could make a strategic decision to offer a rate
that is lower than the challenged rate but higher than the
complainant's offer; if the Board selected such an offer, the
complainant would obtain rate relief despite the Board's selection of
the defendant's offer). Therefore, the benefits of a final offer
procedure--particularly in light of the agency's decades-long efforts
to create accessible small rate case processes, see id., slip op. at 3-
5, 11--supports the burden allocation adopted here.
B. Specific Scenarios Under FORR
AAR again describes a hypothetical scenario in which a shipper
submits an offer below the jurisdictional threshold, see 49 U.S.C.
10707(d)(1)(A), and yet the complainant otherwise proves that the
defendant's offer--be it the challenged rate or otherwise--is
unreasonably high. (See AAR SNPRM Comment 11-12.) But a FORR case would
never reach that point. If the shipper submits an offer below the
jurisdictional threshold, its complaint would be dismissed due to that
failure of proof.
As noted above, the SNPRM observed that a FORR defendant could make
a strategic decision to offer a rate that is lower than the challenged
rate but higher than the complainant's offer. SNPRM, EP 755 et al.,
slip op. at 22-23; (see also UP SNPRM Comment 5 (``it is easier to
defend a lower rate than a higher rate against a charge that the rate
is too high'')). The SNPRM drew an analogy to a SAC case, in which a
party can deliberately take a less aggressive position on an element of
the analysis if it is concerned about its likelihood of success--a
decision that changes what the party ultimately submits as the SAC
rate. Id., slip op. at 23 n.37.
UP asserts in response that deliberately taking a less aggressive
position regarding one element of a SAC analysis is not analogous to
conceding the unlawfulness of the challenged rate under FORR. (See UP
SNPRM Comment 4.) Immediately following this assertion, however, UP
makes an argument that confirms the analogy to SAC. According to UP,
because each party's final offer must reflect what it considers to be a
maximum reasonable rate, ``a railroad would violate FORR if it were to
`strategically' make a final offer below what it considers the lawful
maximum rate.'' (Id.) But UP again fails to recognize that the maximum
reasonable rate is the rate produced through the Board's rate
reasonableness process, not an abstraction that exists outside such a
process. In a SAC case, a party might believe the correct SAC rate is
higher or lower than what it chooses to submit to the Board, but it can
submit a different rate nonetheless to improve its likelihood of
success. Believing in one rate and submitting another does not
``violate SAC.''
UP's argument appears to contemplate an intent element in rate
reasonableness determinations--the idea that a railroad would ``violate
FORR'' if it argues for one rate but has a different rate in mind. This
notion also explains UP's suggestion, (see UP SNPRM Comment 4-5), that
a railroad would be required to advocate for prescription of a rate
higher than the challenged rate, whenever it happens to believe that
the rate should be higher than the challenged rate. But the Board's
rate reasonableness processes do not include an intent element.
Although the SNPRM stated that ``each party's final offer must
[[Page 307]]
reflect what it considers to be a maximum reasonable rate,'' SNPRM, EP
755 et al., slip op. at 19, the Board did not intend this statement to
impose an intent requirement. Indeed, the SNPRM elsewhere recognized
that a carrier might choose to make a strategic decision to offer a
rate lower than the challenged rate that the carrier defended in its
reasonableness evidence. Id. at 23 n.37. To avoid confusion, the Board
now withdraws the quoted statement of the SNPRM. The Board at the offer
stage will, of course, endeavor to select the offer that best
accomplishes the Board's economic and statutory goals (see Part IV
below), so parties would be wise to develop and explain their offers
with those considerations in mind. But parties are not prohibited from
formulating their offers based on additional considerations, as well.
In a similar vein, the Board also clarifies that a carrier does not
concede unreasonableness by submitting an offer that is lower than the
challenged rate (contra AAR SNPRM Comment 15); the parties' offers
become relevant only after the challenged rate has been judged
unreasonable. This means that carriers are free to argue ``in the
alternative'' and submit separate analyses at the rate-reasonableness
and offer-selection stages. In other words, a carrier's justification
supporting its choice of offer can proceed on the assumption that the
challenged rate has already been found unreasonable. Carriers are not
required to submit an offer that is the same as the challenged rate
and, contrary to the SNPRM, the Board recognizes that the two analyses
may not be the same in many cases. Cf. SNPRM, EP 755 et al., slip op.
at 21.
UP also repeats its argument posing a hypothetical situation in
which a complainant submits very compelling evidence that the
challenged rate is unreasonable and no evidence whatsoever in support
of its offer. (See UP SNPRM Comment 5-6.) In that situation, UP argues,
the Board would have to accept that unsupported (and unreasonably low)
offer, because the Board cannot prescribe the challenged rate after
finding it unreasonable. (See id.) The SNPRM pointed out in response
that it is implausible that a complainant's analysis producing an
unsupported and unreasonably low rate could satisfy FORR's decisional
criteria to show that the challenged rate is unreasonable. SNPRM, EP
755 et al., slip op. at 23. UP now contends that ``FORR does not
require the shipper's evidence of unreasonableness to show the
shipper's final offer rate would be reasonable. In fact, FORR requires
separate analyses of the issues, see NPRM at 12 (`each party would be
required to submit an analysis addressing the reasonableness of the
challenged rate and support for the rate in the party's offer'
(emphasis added)), while recognizing the evidence would `likely' (but
not necessarily) overlap, id. at 12 n.24.'' (UP SNPRM Comment 5-6.)
UP misconstrues the language it cites from the NPRM. Contrary to
UP's claim, the NPRM does not say that FORR would require ``separate
analyses'' of the reasonableness of the challenged rate and support for
the party's offer. However, UP is correct that FORR does not require a
party to use the same analysis for both of these purposes. The Board
therefore clarifies that it retains the ability to prevent abuse of its
processes. If a complainant ``focus[es] all its efforts'' on showing
that the challenged rate is unreasonable and submits no support for its
offer (see UP NPRM Comment 15), for example, the Board could decide to
dismiss the complaint without reaching the reasonableness of the
challenged rate. The Board will also confirm its ability to exercise
this discretion by adding the following language to the regulations
adopted today: ``If a complainant fails to submit explanation and
support for its offer, the Board may dismiss the complaint without
determining the reasonableness of the challenged rate.''
C. FORR's Encouragement of Settlements
The SNPRM acknowledged that the risks faced by shippers and
railroads are not reciprocal, because the Board would never prescribe a
rate higher than the challenged rate. It explained, however, that this
lack of reciprocity is a result of the Board's statutory mandate to
regulate railroad conduct rather than shipper conduct. SNPRM, EP 755 et
al., slip op. at 23-24. AAR now argues that the Board's statutory
mandate does not distinguish FORR from the Board's other rate
reasonableness processes, including Three-Benchmark, because they ``do
not suffer from the same lack of reciprocal risks and do not exert the
same coercive pressure on the railroads.'' (See AAR SNPRM Comment 15-
16.) The fact that potential carrier risk is greater than potential
shipper risk in a FORR case, however, does not mean that it would be
improper or unfair for the Board to adopt FORR. The statutory
provisions that require railroad rates to be reasonable and authorize
the Board to regulate rate reasonableness apply to all of the Board's
processes. See, e.g., 49 U.S.C. 10704(a)(1) (authorizing the Board to
prescribe a rate or practice for a carrier). As the SNPRM stated, in
adopting FORR, the Board has weighed the competing considerations and
determined that FORR would provide sufficient benefits (see, e.g.,
NPRM, EP 755 et al., slip op. at 4-7) even if it were found not to
afford the full settlement incentives present in certain other
contexts. SNPRM, EP 755 et al., slip op. at 24.
The SNPRM stated that, while the Board would not prescribe a rate
higher than the challenged rate in a FORR case, there is still
considerable risk to a complainant that brings an unsuccessful FORR
case that the carrier may conclude based on the Board's evaluation of
the economic analyses that it has more latitude to set a higher rate.
Id. The SNRPM also noted that, should the Board find the challenged
rate has not been shown to be unreasonable in a given case, the Board's
findings could have a preclusive effect on that complainant in
subsequent litigation. Id. AAR asserts in response that ``none of these
risks remotely approach the severity of the risks the railroads face
from an adverse outcome.'' (AAR SNPRM Comment 16.) But the SNPRM did
not suggest that complainants' litigation risks are identical to
defendants' risks, nor do they need to be. As AAR itself points out,
complainants under the Board's other rate reasonableness processes do
not run the risk that the Board will prescribe a rate higher than the
challenged rate, because the Board is not authorized to do so. (See AAR
SNPRM Comment 16.) Rather, as the SNPRM explained, bringing a FORR case
is not without risks for complainants--and depending on the
circumstances of the case, those risks could be significant, such as a
railroad substantially raising the rate based on the analysis adopted
in the Board's decision. See SNPRM, EP 755 et al., slip op. at 24.
The SNPRM also stated that any lack of reciprocity is balanced by
the defendant carrier's possession of market dominance--a prerequisite
in any rate case before the Board, including FORR. SNPRM, EP 755 et
al., slip op. at 24; see also 49 U.S.C. 10707 (market dominance
prerequisite).\24\ In response, UP argues that the idea of leveling the
playing field does not make sense because (a) a market dominance
finding does not mean the railroad is charging
[[Page 308]]
unreasonable rates, as demonstrated by the fact that railroads found to
have market dominance often prevail in rate cases; and (b) the Board's
market dominance test does not account for product and geographic
competition, meaning that even railroads found to have market dominance
``cannot charge more than market rates.'' (See UP SNPRM Comment 6.) But
the SNPRM did not say the playing field was unlevel due to railroads'
charging unreasonable rates. It referred instead to the ``imbalance in
bargaining power'' inherent in a market dominance finding, which
Congress sought to level by authorizing rate reasonableness
determinations and requiring the Board maintain simplified procedures
for smaller cases. SNPRM, EP 755 et al., slip op. at 24; see also 49
U.S.C. 10701(d)(1), (3). As for product and geographic competition, the
Board found that they effectively limit railroad pricing only ``in
certain circumstances,'' and ``if there are product and geographic
competitive alternatives that are obviously effective, a shipper would
be unlikely to pursue a regulatory rate challenge.'' \25\
---------------------------------------------------------------------------
\24\ The SNPRM noted that a complainant challenging a rate that
is subject to market dominance (i.e., any complainant whose case
under FORR reaches the rate reasonableness phase) would not have the
options that UP assumes would be available to complainants. (See UP
NPRM Comment 14-16 (assuming, for example, that if a complainant
loses, it could simply choose not to move traffic under the rate
that was at issue in the case, or that, ``in many situations,'' the
challenged rate is constrained by market forces).)''
\25\ See Mkt. Dominance Determinations--Prod. & Geographic
Competition, 3 S.T.B. at 946 n.49, 948 (emphasis added),
reconsideration denied Mkt. Dominance Determinations--Prod. &
Geographic Competition, EP 627 (STB served July 2, 1999), remanded
sub nom. Ass'n of Am. R.Rs. v. STB, 237 F.3d 676 (D.C. Cir. 2001),
decision on remand Mkt. Dominance Determinations--Prod. & Geographic
Competition, EP 627 (STB served Apr. 6, 2001), pet. for review
denied sub nom. Ass'n of Am. R.Rs. v. STB, 306 F.3d 1108, 1111 & n.2
(D.C. Cir. 2002); see also Pet. of the Ass'n of Am. R.R.s, EP 717,
slip op. at 7 (STB served Mar. 19, 2013) (``Indirect competition
may, in certain circumstances, effectively constrain rail rates for
transportation of coal for electric power generation.'') (emphasis
added).
---------------------------------------------------------------------------
AAR argued in its NPRM comments--similar to its prior claims in
opposing other efforts at reforming the Board's rate review processes
\26\--that rates adopted through FORR settlements would become the
basis for comparison groups in Three-Benchmark cases, ``further driving
railroad pricing down.'' (See AAR NPRM Comment 22-23.) The SNPRM
pointed out in response that AAR's argument would apply whenever any
shipper obtained a lower rate, either through a Board decision (using
any rate reasonableness process) or a settlement. SNPRM, EP 755 et al.,
slip op. at 25. AAR now states that it disagrees because FORR ``will
create a far more severe downward force on rates.'' (AAR SNPRM Comment
18.)
---------------------------------------------------------------------------
\26\ See AAR Suppl. Comment 10-11, Feb. 26, 2007, Simplified
Standards for Rail Rate Cases, EP 646 (Sub-No. 1) (predicting
incorrectly that the Three-Benchmark approach would ``inevitably
result in an overall ratcheting down of rates towards an average'').
---------------------------------------------------------------------------
The SNPRM's explanation to which AAR is responding dealt with a
specific type of ``downward force on rates''--inclusion of a rate in
Three-Benchmark comparison groups. AAR's response provides no support
whatsoever for the idea that FORR would lead to ``ratcheting'' in this
way any more than lower rates obtained by any other mechanism. To the
extent AAR is now abandoning its argument about FORR settlements in
Three-Benchmark comparison groups and arguing more generally that FORR
will drive down rates, it merely repeats arguments that were addressed
in the SNPRM. See SNPRM, EP 755 et al., slip op. at 23-25; (see also
AAR SNPRM Comment 18 (making another, very similar contention that FORR
``is unfair to railroads, creates massive uncertainty, imposes risks
that are not reciprocal, and will result in prescribed rates that
benefit shippers and bear no relation to market outcomes'').)
Finally, BNSF repeats its assertion that uncertainty in FORR cases
would deter negotiated outcomes. (See BNSF SNPRM Comment 3.) But as the
SNPRM pointed out, SNPRM, EP 755 et al., slip op. at 23 n.38, railroad
commenters offered no support for this claim, and the NPRM cited
multiple sources supporting the opposite proposition. NPRM, EP 755 et
al., slip op. at 5-7.
Part IV--Review Criteria
As noted above, the Board stated that, in reviewing offers, it
would take into account the RTP,\27\ the Long-Cannon factors in 49
U.S.C. 10701(d)(2), and appropriate economic principles. See NPRM, EP
755 et al., slip op. at 10-13; SNPRM, EP 755 et al., slip op. at 26-29
(further explaining the criteria). Railroad interests continue to argue
that such a multi-factor test is arbitrary and capricious and
unconstitutionally vague. The Board rejects these arguments for the
reasons stated in the SNPRM and below.
---------------------------------------------------------------------------
\27\ The SNPRM explained that the Board would rely primarily on
the RTP factors that have previously been relied on in the rate
reasonableness context: the policy to allow, to the maximum extent
possible, competition and the demand for services to establish
reasonable rates for transportation by rail, 49 U.S.C. 10101(1); to
promote a safe and efficient rail transportation system by allowing
rail carriers to earn adequate revenues, as determined by the Board,
Sec. 10101(3); and to maintain reasonable rates where there is an
absence of effective competition and where rail rates provide
revenues which exceed the amount necessary to maintain the rail
system and to attract capital, Sec. 10101(6). SNPRM, EP 755 et al.,
slip op. at 27. The Board emphasized that, to the extent parties
seek to rely on RTP factors that have not been relied on in the rate
reasonableness context, they must demonstrate how those factors
relate to the economic analysis of the reasonableness of the rate.
For example, if a party wanted to argue that Sec. 10101(4), which
establishes adequacy of rail service as an RTP goal, is relevant,
the party must explain the relevance of that RTP factor to the
proposed methodology. See, e.g., TRB Rep. 148 (``As common carrier
rates were deregulated, so too was service quality, since a
product's price and quality will be interlinked''), 201 (attention
to service quality is necessary to carry out the common carrier
obligation, which in turn must persist ``to give effect to the law's
protections for shippers from unreasonable rates'').
---------------------------------------------------------------------------
In the SNPRM, the Board distinguished FCC v. Fox Television
Stations, Inc., 567 U.S. 239 (2012), by pointing out, among other
things, that under FORR the Board would ``us[e] the same statutory
criteria and economic principles applied in past rate cases using other
processes.'' SNPRM, EP 755 et al., slip op. at 29. AAR now argues that
this is not a distinguishing factor because shippers will be able to
choose an economic methodology within a FORR case. (See AAR SNPRM
Comment 13-14.)
AAR selectively quotes a phrase from the paragraph distinguishing
Fox Television and ignores the analysis in the SNPRM that refutes AAR's
position. As the SNPRM explained, adjudication of claims under 49
U.S.C. 10702 and 11101, addressing the reasonableness of practices and
the common carrier obligation, respectively, bears a close resemblance
to the approach adopted here. SNPRM, EP 755 et al., slip op. at 30.
Each involves a non-prescriptive, multi-factor analysis. The ICC and
the Board have followed this approach for more than a century, with
judicial approval, despite parties' inability to ``know in advance what
the Board might deem unreasonable'' with the specificity that AAR would
apparently require, (AAR NPRM Comment 17-18). SNPRM, EP 755 et al.,
slip op. at 30 (citations omitted).
In its NPRM comments, AAR characterized FORR as distinct from these
other agency processes in terms of predictability, implying that the
Board has given no hint as to how it would reach a decision. (See AAR
NPRM Comment 17-19; AAR Comment in Response to Mem. 5, Aug. 12, 2020.)
That is not so; the NPRM articulated the criteria that apply in
determining rate reasonableness,\28\ and if necessary,
[[Page 309]]
choosing an offer. These criteria would signal to parties what rates
might be found unreasonable. For instance, if a defendant railroad is
charging vastly more for the challenged traffic than it does for
comparable traffic, if it is aware of costly inefficiencies that a new
railroad would not adopt, or if its revenue from the challenged rate is
out of proportion to its properly attributable capital requirements and
other costs of service, (see BNSF Mem. 2 (Mtg. with Board Member
Begeman)), then it could reasonably predict a lower likelihood of
success in a FORR case. FORR's level of predictability, which is in
line with unreasonable practice cases and other adjudications requiring
the tribunal to weigh multiple factors, does not render the FORR
procedure arbitrary and capricious or unconstitutionally vague. SNPRM,
EP 755 et al., slip op. at 31.
---------------------------------------------------------------------------
\28\ AAR disagreed with similar reasoning proffered by Olin; AAR
stated that Olin ``misses the point'' because, ``[i]n the rate
context, the elastic term `reasonable' has specific meaning.'' (AAR
Comment in Response to Mem. 5, Aug. 12, 2020.) In this attempt to
distinguish rate reasonableness from unreasonable practice cases and
rulings on the common carrier obligation, AAR did not cite any
statutes or case law. See id. AAR relied instead on an article,
which does not even support the point for which AAR cited it, much
less provide statutory or precedential support. See id. AAR further
noted that, with respect to rate reasonableness, Congress has
required the Board to account for railroad revenue adequacy and the
Long-Cannon factors. See id. But the FORR process does account for
these considerations. See NPRM, EP 755 et al., slip op. at 10-12.
---------------------------------------------------------------------------
In response to the SNPRM's comparison of FORR to other rate
reasonableness processes in terms of predictability, AAR claims that
``[i]t is no answer to say that many rate cases `raise[ ] novel
issues.' '' (AAR SNPRM Comment 14.) But in fact, the SNPRM's analysis
did answer a position of AAR's that it repeats in its comments on the
SNPRM. According to AAR, ``[u]nder FORR, it would be impossible for
railroads to know in advance how to conform their conduct to the law by
charging a reasonable rate.'' (AAR SNPRM Comment 13-14.) But, as the
SNPRM pointed out, AAR's argument assumes that the Board cannot have a
rate reasonableness process unless railroads can predict the outcome of
that process in advance of the Board's decision in an individual case.
SNPRM, EP 755 et al., slip op. at 29-30. That argument overstates the
predictability of other types of litigation before the Board and
understates the predictability of a FORR case. Notwithstanding parties'
posturing in negotiations before a rate case, (see BNSF NPRM Comment
8), they cannot predict in advance the resolution of the novel,
potentially case-dispositive issues that have arisen in almost every
recent SAC case--nor can the Board, before the development of an
administrative record. SAC, however, is not unconstitutionally vague
and has been upheld on judicial review. SNPRM, EP 755 et al., slip op.
at 30 (citations omitted).\29\
---------------------------------------------------------------------------
\29\ AAR again does not address whether the discussion it cites
from Paralyzed Veterans of America v. D.C. Arena, L.P., 117 F.3d
579, 584 (D.C. Cir. 1997), survives Perez v. Mortgage Bankers
Association, 575 U.S. 92 (2015). (See AAR SNPRM Comment 14.) It does
not matter here, however, for the reasons stated above. Far from
``promulgat[ing] mush,'' see Paralyzed Veterans, 117 F.3d at 584,
the Board is adopting a test that requires the balancing of multiple
factors stated in advance, as in other types of adjudication.
---------------------------------------------------------------------------
BNSF also disputes the comparison to SAC, asserting that ``parties
raise novel issues in SAC cases that may affect the predictability of
the outcome, [but] those cases were litigated under traditional SAC
procedures where the parties had the ability to fully develop the
administrative record and the Board had its traditional discretion to
weigh the evidence and determine what the maximum reasonable rate
should be. Neither of those procedural protections will be present in
[a] FORR proceeding.'' (BNSF SNPRM Comment 2.) But BNSF does not
explain how it believes the massive record development and vast range
of individual issues that parties present in modern SAC cases--a
process that has ballooned far beyond what SAC was meant to entail, see
RRTF Rep. 22--increases parties' ability to predict the resolution of
novel issues. See SNPRM, EP 755 et al., slip op. at 29-30.
According to AAR, the Board has not provided sufficient clarity on
the legal standard because it will not announce the ``winning''
standard until the end of a FORR case. (See AAR SNPRM Comment 14; see
also BNSF SNPRM Comment 2 (parties to a FORR case will have to litigate
``without knowing what the test is until reading it in the opposing
party's opening brief'').) However, AAR misstates the nature of the
standard in FORR cases. As the SNPRM explained, the legal standard in
FORR cases is a non-prescriptive, multi-factor analysis, which the
Board set forth in the NPRM and SNPRM. NPRM, EP 755 et al., slip op. at
10-12; SNPRM, EP 755 et al., slip op. at 26-29. To the extent AAR
contends an agency's process is unconstitutionally vague unless the
agency spells out in advance the analysis that such a test would
produce in an individual case, its position runs afoul of the
judicially approved legal standards applied in the Board's long-
established processes for adjudicating the reasonableness of practices
and railroads' adherence to the common carrier obligation. See SNPRM,
EP 755 et al., slip op. at 30.\30\
---------------------------------------------------------------------------
\30\ UP argues that it is unlawful to allow a party to prevail
if its submission does not reflect the statutory rate reasonableness
criteria. (See UP SNPRM Comment 3-4.) UP is correct to the extent
that a party should not be able to disregard the statutory criteria
and still potentially succeed in its case. The Board therefore
clarifies that, if a party's evidence and argument addressing the
reasonableness of the challenged rate do not satisfy the statutory
criteria, it will not prevail on rate reasonableness. And as noted
above, the Board will endeavor at the offer selection stage to
select the offer that best accomplishes the Board's economic and
statutory goals.
---------------------------------------------------------------------------
BNSF argues that ``[p]arties will face the choice of seeking to
exhaustively address any potential feasible methodology that could be
used to analyze the challenged rate to devise arguments in the
alternative or engaging in a crash effort to adequately analyze novel
methodologies in the ten days parties have to file their replies--
either option leading to substantial unnecessary litigation expense.''
(BNSF SNPRM Comment 2.) As framed by BNSF, a party to an unreasonable
practice case under Sec. 10702 would feel the need to ``address any
potential feasible methodology that could be used to analyze the
challenged [practice] to devise arguments in the alternative,'' but no
one has suggested that parties litigate this way in such cases. And
having to analyze the opposing party's submission quickly is a
necessary part of litigating under a short timeline, which is an
important aspect of improving the accessibility of the Board's rate
reasonableness processes. See NPRM, EP 755 et al., slip op. at 3-4.
Similarly, AAR claims that parties to FORR cases ``will not even
know the materials they must produce in discovery.'' (AAR SNPRM Comment
14.) AAR contends that, ``if a party's methodology is ultimately
rejected by the Board, there is no basis for compelling their opponent
to produce discovery in service of it.'' (Id. at 14-15.) As the
Coalition Associations point out in their reply comment, however, to
support the relevance of a discovery request, a party would have to be
able to show how the request is relevant to the FORR criteria. (See
Coalition Ass'ns SNPRM Reply Comment 14.) Also, parties are able to
conduct discovery in cases addressing the reasonableness of practices
and railroads' adherence to the common carrier obligation. The fact
that the legal standards in these cases are non-prescriptive, multi-
factor analyses has not prevented parties from ``even know[ing] the
materials they must produce in discovery.'' See, e.g., R.R. Salvage &
Restoration, Inc.--Pet. for Declaratory Order, NOR 42102 (STB served
July 20, 2010) (resolving a case under Sec. 10702 following
substantial discovery); Reasonableness of BNSF Ry. Coal Dust Mitigation
Tariff Provisions, FD 35557 (STB served Dec. 17, 2013) (same); Bar Ale,
Inc. v. Cal. N. R.R., FD 32821 (STB served July 20, 2001) (resolving a
case under Sec. 11101
[[Page 310]]
following substantial discovery). A motion to compel in a case using a
non-prescriptive, multi-factor analysis is not automatically defeated
by the fact that the Board may ``ultimately reject[]'' the argument for
which the discovery is sought. See, e.g., Grain Land Coop v. Canadian
Pac. R.R., NOR 41687, slip op. at 2-3 (STB served Dec. 1, 1997)
(compelling discovery); Sierra R.R. v. Sacramento Valley R.R., NOR
42133, slip op. at 4-5 (STB served Apr. 23, 2012) (denying a motion to
compel based on the merits of that motion, without reliance on the fact
that the legal standard to be applied was a non-prescriptive, multi-
factor analysis).
Finally, AAR argues that ``[i]f the railroad's offer is deemed
`unreasonable,' it is hard to understand how revenue adequacy would
even be relevant if the Board is compelled to accept the shipper's
offer.'' (AAR SNPRM Comment 18.) In making this argument, AAR assumes a
scenario in which the Board has rejected the railroad's offer and is
``compelled'' to accept the shipper's offer, without any consideration
of revenue adequacy. As the SNPRM explained, however, the Board would
not be ``compelled'' to find the challenged rate unreasonable, much
less reject the railroad's offer or accept the shipper's offer, in a
case where the evidence does not demonstrate sufficient protection of
revenue adequacy. SNPRM, EP 755 et al., slip op. at 27-28.
Part V--Discovery and Procedural Schedule
AAR repeats arguments from its NPRM comments about the brief
procedural schedule having an unfairly greater impact on railroads than
on shippers. (See AAR SNPRM Comment 16-17.) However, AAR fails to
address key aspects of the SNPRM's reasoning in response to these
arguments. As the SNPRM pointed out, unlike defendants, complainants
must make their cases largely based on information in the possession of
the opposing party. See SNPRM, EP 755 et al., slip op. at 37. In this
regard, shorter discovery deadlines favor the defendants and further
balance out the burden that railroad interests describe. Id.; see also
Coalition Ass'ns NPRM Comment 9. And in any event, even assuming that
the procedural schedule in FORR might, in some cases, place a
proportionately greater burden upon defendants than would other rate
review processes, such a burden must be weighed against the likelihood
that rate relief may be functionally unavailable in a small dispute.
SNPRM, EP 755 et al., slip op. at 37.
In the SNPRM, the Board revised its initial FORR proposal to add
mandatory mediation. Id., slip op. at 38. AFPM opposes this change.
(AFPM SNPRM Comment 16.) But AFPM merely repeats NGFA's earlier
argument against mandatory mediation, without addressing the Board's
response to that argument. (See id.) As the SNPRM noted, the Board's
mediation program has led to post-complaint settlements, to the benefit
of the parties and the Board. SNPRM, EP 755 et al., slip op. at 38; see
also, e.g., Twin City Metals, Inc. v. KET, LLC, NOR 42168 (STB served
Sept. 23, 2020). The Board concluded that mediation can produce
substantial benefits and that the possibility of achieving settlement
through mediation would outweigh a modest lengthening of FORR's
procedural timeline. SNPRM, EP 755 et al., slip op. at 38; see also,
e.g., Assessment of Mediation & Arb. Proc., EP 699, slip op. at 2, 4
(STB served May 13, 2013) (``The Board favors the resolution of
disputes through the use of mediation and arbitration procedures, in
lieu of formal Board proceedings, wherever possible. . . . If a dispute
is amicably resolved, it is likely that the parties would incur
considerably less time and expense than if they used the Board's formal
adjudicatory process.'')
The SNPRM proposed to keep the time period for the Board's decision
at 90 days rather than reducing it to 60 days. SNPRM, EP 755 et al.,
slip op. at 37-38. AFPM disagrees with this determination, arguing that
a 60-day comment period is the ``default timeframe'' to submit comments
in rulemaking actions. (AFPM SNPRM Comment 16.) AFPM also asserts that,
because the Board has 90 days to issue a decision in major merger
cases, it should be able to issue a decision in an expedited process
more quickly than that. (Id.) The Board again declines to make this
change. AFPM does not explain why it believes the timeline for parties
to comment in a rulemaking is analogous to the timeline for the Board
to issue a decision in a rate case. The merger deadline it cites is
statutory, 49 U.S.C. 11325(b)(3), and AFPM does not explain why
Congress's reasoning with respect to a different type of proceeding
must constrain the Board's reasoning with respect to the timing of
FORR.
Part VI--Market Dominance
In the SNPRM, the Board proposed to give FORR complainants a choice
between the streamlined and non-streamlined market dominance
approaches. SNPRM, EP 755 et al., slip op. at 41; Market Dominance
Streamlined Approach, EP 756 (STB served Aug. 3, 2020) (adopting
streamlined market dominance as an option in rate cases); 49 CFR
1111.12 (streamlined market dominance regulations).
BNSF argues that allowing non-streamlined market dominance will
increase the time required in FORR cases, contrary to the Board's
goals, because the Board will grant extensions of time. (See BNSF SNPRM
Comment 3.) Although BNSF is correct that extensions of time are not
prohibited in FORR, the Board intends to disfavor such requests
strongly. Granting extensions of time in FORR cases would directly
undermine one of the fundamental attributes of this process--using
short time limits to constrain the volume and complexity of the record,
which in turn would allow the Board to issue a decision expeditiously.
See NPRM, EP 755 et al., slip op. at 6-7. For this reason, even
extension requests to which both parties consent will be disfavored,
and parties are encouraged not to spend the scarce time available under
this procedure on preparing extension requests. Id., slip op. at 14;
SNPRM, EP 755 et al., slip op. at 41 (specifically discouraging
extension requests with respect to non-streamlined market dominance).
Joint requests to allow time to negotiate a settlement, including joint
requests for mediation, are an exception and will be considered by the
Board.
BNSF also asserts that responding to a non-streamlined market
dominance presentation will be more burdensome to a FORR defendant than
a Three-Benchmark defendant because in FORR, the complainant ``may
pursue a novel rate reasonableness theory that will consume a
disproportionate share of the railroad defendant's time and energy in
preparing its responsive pleading.'' (BNSF SNPRM Comment 3-4.) But the
SNPRM acknowledged the possible burden on defendants and accordingly
tripled defendants' time for replies, from 10 days to 30 days, in cases
where complainants choose non-streamlined market dominance. SNPRM, EP
755 et al., slip op. at 41. BNSF does not respond to the Board's
reasoning for allowing complainants this choice: ``[l]imiting FORR [to
streamlined market dominance] could effectively deny access to FORR for
many potential complainants--those who are unable to satisfy one or
more of the streamlined factors--which is contrary to FORR's goal of
improving access to rate reasonableness determinations.'' Id.
BNSF further contends that, ``[i]f the Board chooses to permit
shippers to use non-streamlined approaches to market dominance on the
basis that the short time frame is a sufficient protection
[[Page 311]]
against the potential for evidentiary sprawl, then it is logical and
proportionate to permit evidence of product and geographic competition
when a shipper elects to use a non-streamlined market dominance
presentation.'' (BNSF SNPRM Comment 4.) BNSF accurately observes that
FORR has a significant ``laboratory'' element, (see id.), and relying
on FORR's tight time frames to limit evidentiary volume in reference to
product and geographic competition could merit consideration. See TRB
Rep. 122 (observing that antitrust enforcement agencies are able to
assess product and geographic competition in a short period of time
because they strictly limit the time that parties have to compile
evidence). However, consideration of whether to incorporate product and
geographic competition in market dominance determinations has
constituted entire rulemaking proceedings on its own,\31\ and
addressing it here would unduly expand the scope of this proceeding.
Therefore, like the possibility of two-tiered relief, see SNPRM, EP 755
et al., slip op. at 47, and below, the Board will reserve this issue
for possible future proceedings.
---------------------------------------------------------------------------
\31\ 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.
---------------------------------------------------------------------------
The Coalition Associations note that, in a FORR case where the
complainant chooses streamlined market dominance, it would have the
option of an evidentiary hearing before an administrative law judge to
discuss market dominance, but if the complainant chooses non-
streamlined market dominance, it would not have the option of a
hearing. (Coalition Associations SNPRM Comment 4-5); SNPRM, EP 755 et
al., slip op. at 39, 42. According to the Coalition Associations, ``it
is irrational and incongruous for the Board to permit rebuttal evidence
in streamlined market-dominance cases but to prohibit it in non-
streamlined cases.'' (Coalition Associations SNPRM Comment 5.) The
Board acknowledges the apparent incongruity in these procedures.
However, closer examination reveals that the procedure as proposed in
the SNPRM is neither irrational nor incongruous. As an initial matter,
the optional hearing in a FORR case using streamlined market dominance
is not solely an opportunity for the complainant to present rebuttal;
as the NPRM explained, if the complainant chooses a hearing, both sides
would be permitted to present their market dominance positions. NPRM,
EP 755 et al., slip op. at 10. But even to the extent the hearing
allows for rebuttal, the Board disagrees with the Coalition
Associations' claim that ``the need for rebuttal is even greater in
non-streamlined market-dominance cases.'' (Coalition Associations SNPRM
Comment 5.) The opening submission of a complainant using streamlined
market dominance is truly minimal, addressing only a specified list of
factors and without the full evidentiary presentation that a
complainant would typically submit in a case using non-streamlined
market dominance. See Mkt. Dominance Streamlined Approach, EP 756, slip
op. at 4, 27-28, 37 (STB served Aug. 3, 2020). Allowing such a minimal
opening submission is by design, with the goal of overcoming the
significant burdens in terms of cost and time that complainants can
otherwise face in addressing market dominance. See id., slip op. at 1-
3, 6-7. A complainant will have a greater need for rebuttal after
submitting so little in its streamlined market dominance opening, as
opposed to a non-streamlined market dominance case where the
complainant has an opportunity on opening to present its complete
position regarding market dominance.
Moreover, the Coalition Associations' proposed solution--
bifurcating market dominance and rate reasonableness pleadings in FORR
cases using non-streamlined market dominance, (see Coalition
Associations NPRM Comment 14-15)--would substantially undercut FORR's
use of short timelines to limit the volume and complexity of the
evidentiary record. Contrary to Coalition Associations' claim,
(Coalition Associations SNPRM Comment 7), their proposed addition of
three rounds of market dominance pleadings would be disproportionate to
FORR. The SNPRM observed that the various procedural additions proposed
by parties, some of which the SNPRM adopted, would ``detract[ ] from
the Board's goal of a highly expedited procedural schedule.'' SNPRM, EP
755 et al., slip op. at 36. Compared to the longest version of the
procedural schedule contemplated in the SNPRM, with a maximum of 96
days for record development, see id., slip op. at 36, 42, the Coalition
Associations' maximum record development time of 129 days would
constitute an expansion by greater than 30 percent. (See Coalition
Associations NPRM Comment 10 (21 days for motions to compel); Coalition
Associations SNPRM Comment 12 (108 days of record development excluding
motions to compel).)
Notwithstanding their concerns about a lack of rebuttal with
respect to market dominance in non-streamlined cases (Coalition
Associations SNPRM Comment 6), the Coalition Associations have
expressed strong support for FORR's rate reasonableness procedure,
which does not include rebuttal. (See Coalition Associations NPRM
Comment 2; Coalition Associations SNPRM Comment 1.) The Board has heard
rail customers' concerns about the duration of rate cases, see NPRM, EP
755 et al., slip op. at 3-4 & n.7, and FORR's simplified procedure is
what permits its expedited timeline.
The SNPRM also proposed to require defendants to file market
dominance presentations only on reply, rather than on opening. SNPRM,
EP 755 et al., slip op. at 39-40. AFPM states that it has concerns with
this approach and recommends, instead, that the Board return to its
initial proposal of prohibiting complainants from using non-streamlined
market dominance in FORR cases. (See AFPM SNPRM Comment 16.) AFPM,
however, does not identify its specific concerns, nor does it respond
to the Board's reasoning for eliminating FORR defendants' market
dominance opening, see SNPRM, EP 755 et al., slip op. at 40, or its
reasoning for allowing complainants to choose non-streamlined market
dominance, see SNPRM, EP 755 et al., slip op. at 41. In fact, AFPM
states that it does not oppose giving FORR complainants the choice
between streamlined and non-streamlined market dominance. (See AFPM
SNPRM Comment 17.)
Part VII--Relief Cap
In the NPRM and SNPRM, the Board proposed to establish a relief cap
of $4 million, indexed annually using the Producer Price Index, which
would apply to an award of reparations,\32\ a rate prescription or any
combination of the two. NPRM, EP 755 et al., slip op. at 16; SNPRM, EP
755 et al., slip op. at 47. This is consistent with the potential
relief afforded under the Three-Benchmark methodology.\33\ SNPRM, EP
755 et al., slip op. at 42. The Board further proposed that any rate
prescription be limited to no more than two years unless the parties
agree to a different limit on relief. Id., slip op. at 42-43. Such a
limit is one-fifth of the
[[Page 312]]
10-year limit applied in SAC cases and less than half of the five-year
limit applied in Simplified-SAC and Three-Benchmark cases, see
Expanding Access to Rate Relief, EP 665 (Sub-No. 2), slip op. at 6,
thereby accounting for the expedited deadlines of the FORR procedure.
---------------------------------------------------------------------------
\32\ 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).
\33\ The relief cap will incorporate indexing that has
previously been applied to the Three-Benchmark cap, so that the cap
for FORR is the same as the cap for Three-Benchmark. The Board
confirms, pursuant to the Coalition Associations' request, that the
FORR relief cap matches the Three-Benchmark cap, including indexing
from 2007. (See Coalition Associations SNPRM Comment 9.)
---------------------------------------------------------------------------
AAR continues to argue that a $4 million dispute is not a small
case, that the $4 million cap is arbitrary, and that the Board has not
addressed disaggregation of claims. (See AAR SNPRM Comment 17.) AAR
offers no support for its opinion that a $4 million case is not
``small''--which is, of course, a relative term. See, e.g., Consumers
Energy Co. v. CSX Transp., Inc., NOR 42142, slip op. at 44 (STB served
Aug. 2, 2018) ($94.9 million in relief in a SAC case). AAR asserts that
the $4 million cap is arbitrary and suggests that the Board has not
provided a rationale to support it. But the Board did in fact provide
that rationale, which AAR does not mention despite its appearance in
both the NPRM and SNPRM. NPRM, EP 755 et al., slip op. at 16
(``[a]pplying a relief cap based on the estimated cost to bring a
Simplified-SAC case would further the Board's intention that Three-
Benchmark and FORR be used in the smallest cases, and applying the same
$4 million relief cap, as indexed, would provide consistency in terms
of defining that category of case.''); SNPRM, EP 755 et al., slip op.
at 43 (same).\34\
---------------------------------------------------------------------------
\34\ See also Coalition Associations SNPRM Reply Comment 16-17
(``AAR assumes that Three Benchmark is the next-more-complicated
method when, in fact, FORR is on par with Three Benchmark; it is an
alternative to Three Benchmark for small cases, not a less
complicated method. Indeed, FORR conceivably could be more
complicated than Three Benchmark, depending upon the methodologies
that the parties present.''); SNPRM, EP 755 et al., slip op. at 43-
44 (``By applying fast timelines and a simplified procedure, the
Board intends that FORR would be less costly to litigate, but that
does not inevitably mean the analysis is less accurate. Parties'
ability to choose their methodology would allow the use of analyses
that are equally accurate or more accurate, if the party presenting
it can prepare the analysis quickly enough to present it in the time
available.'').
---------------------------------------------------------------------------
With respect to disaggregation of claims, AAR fails to acknowledge
that the SNPRM proposed the same case-specific approach that the Board
has had in place since 2007 for all small rate cases. SNPRM, EP 755 et
al., slip op. at 44-45. As the Board explained in Simplified Standards,
``[i]t is not clear that such a mechanism is necessary at this time.
The Board has ample discretion to protect the integrity of its
processes from abuse, and we should be able to readily detect and
remedy improper attempts by a shipper to disaggregate a large claim
into a number of smaller claims, as the shipper must bring these
numerous smaller cases to the Board.'' Simplified Standards, EP 646
(Sub-No. 1), slip op. at 32-33.
The Coalition Associations state that they ``seek clarification as
to when the two-year window for applying the relief cap begins. The
statute clearly allows for two years of reparations, which could result
in the entire relief period occurring prior to the date of the
complaint. It also is clear that a complainant could elect to forego
pre-complaint reparations and apply the relief period from the date of
the complaint.'' (Coalition Associations SNPRM Comment 10.) As the
SNPRM stated, the combined cap is identical to the one adopted for
Three-Benchmark cases. SNPRM, EP 755 et al., slip op. at 45. In a
Three-Benchmark case, as in any other rate reasonableness case, a
complainant can choose to seek reparations, a rate prescription, or
both. See, e.g., Grain Land Coop, NOR 41687, slip op. at 5 (``In its
amended complaint, Grain Land must indicate what rates it is
challenging (by tariff reference, tariff item number(s), and specific
points from and to which the rates apply) and what relief it seeks
(i.e., rate prescription and/or reparations).'') (emphasis added);
Sunbelt Chlor Alkali P'ship v. Norfolk S. Ry., NOR 42130, slip op. at
29 (STB served June 20, 2014) (describing statutory contrasts between
reparations and rate prescription). FORR complainants, accordingly,
will have the same options.
Contrary to the Coalition Associations' suggestion, however, if a
complainant decides to forgo reparations and seek only a prescription,
the transition from reparations to prescription occurs on the effective
date of the prescription order--i.e., the date by which the defendant
must reduce its rate in compliance with the order. See, e.g., Ariz.
Pub. Serv. Co. v. Atchison, Topeka & Santa Fe Ry., NOR 41185, slip op.
at 20 (STB served July 29, 1997) (ordering defendant to reduce its
rates within 60 days of decision). Therefore, when a complainant
chooses to forgo reparations, that includes reparations between the
complaint date and the effective date of the prescription order. The
alternative proposed by the Coalition Associations--in which the relief
period begins ``on a date to be determined solely by the complainant,''
(Coalition Associations SNPRM Comment 10)--would unreasonably allow
complainants to choose a relief period that is entirely disconnected
from the conduct found unlawful by the Board. (See AAR SNPRM Reply
Comment 7-8.) The Coalition Associations express concern that a FORR
complainant could receive only reparations, without any prospective
relief. (See Coalition Associations SNPRM Comment 10.) But that
possibility exists in Three-Benchmark cases as well, if the complainant
receives pre-complaint reparations that exhaust the $4 million cap.
In the SNPRM, the Board proposed not to adopt a two-tiered relief
structure--in which the top tier has a longer procedural schedule and
no limit on the size of the relief--at this time, noting that, ``[i]n
the future, the Board could assess whether FORR may be appropriate for
larger disputes.'' SNPRM, EP 755 et al., slip op. at 47. IMA-NA,
Indorama, and AFPM take issue with this proposal, asking that the Board
instead adopt two-tiered relief immediately. (See IMA-NA SNPRM Comment
16-17; Indorama SNPRM Comment 16-17; AFPM Comment 18.\35\) This request
will be declined, as it was at the SNPRM stage. The Board proposed FORR
to resolve small rate disputes. NPRM, EP 755 et al., slip op. at 7.
Expanding the scope of this rulemaking to address large rate cases as
well would delay that important and time-sensitive goal. IMA-NA and
Indorama argue that ``[t]he Board has ample evidence that this model is
effective and will not cause an onslaught of rate cases based on the
history of this process in Canada . . . .'' (IMA-NA SNPRM Comment 16;
Indorama SNPRM Comment 16.) But as IMA-NA and Indorama acknowledge,
FORR is not the same as the Canadian process. (See id.) Canadian final
offer arbitration is informal, confidential, and non-precedential, and
is conducted by an arbitrator--it is alternative dispute resolution
rather than adjudication. FORR, by contrast, is an innovative attempt
to incorporate a final offer procedure into an agency adjudication,
leading to public, precedential decisions subject to the APA's
requirements for reasoned decision-making. A new approach is necessary
in light of the Board's protracted search for a small rate dispute
process that is accessible to shippers, see NPRM, EP 755 et al., slip
op. at 2-5, and FORR offers a promising opportunity. But it would be
premature to conclude, as IMA-NA and Indorama
[[Page 313]]
do, that there is ``ample evidence that this model is effective.''
---------------------------------------------------------------------------
\35\ AFPM expresses concern that railroads could ``game'' the
relief cap ``by setting high initial rates such that any relief cap
will be quickly exhausted'' and argues that a two-tier cap would
alleviate that concern. (AFPM Comment 18.) As the SNPRM stated in
response to similar arguments, the Board anticipates addressing such
conduct in individual cases should it happen, and the Board will
retain the ability to revise its processes to counteract any abuses
that may arise. See SNPRM, EP 755 et al., slip op. at 46.
---------------------------------------------------------------------------
Accordingly, the Board will adopt the relief cap proposed in the
NPRM and SNPRM.
Part VIII--Miscellaneous Issues
AAR contends that the Board has not explained why it is not
applying the conclusions of InterVISTAS Consulting Inc. (InterVISTAS),
a consultant that prepared a report for the Board in 2016.\36\ (See AAR
SNPRM Comment 15.) However, AAR cites the page of the SNPRM that
provides that explanation. See SNPRM, EP 755 et al., slip op. at 47
(noting, among other things, that the Board was not bound by the
study). AAR claims that InterVISTAS ``reject[ed] final-offer
decisionmaking as an alternative way for the Board to decide rate
disputes.'' (AAR SNPRM Comment 15.) But in fact, InterVISTAS did not
reject final offer procedures for any substantive reason, or even
address final offer procedures substantively in the first place. See
InterVISTAS Rep. 76. Instead, InterVISTAS merely declined to draw any
conclusions from the Canadian final offer process due to its
confidentiality. See id. (``[T]he non-transparent final offer
arbitration process used in Canada to constrain undue exercise of any
market power by railways provides no guidance for alternatives to SAC.
It may be that the methodologies put forward by one party or the other
in the arbitrations could provide insight, but as the process is
confidential, no guidance can be provided.'') (emphasis added). And in
any event, AAR fails to identify any particular substance of the
InterVISTAS report that it contends the Board has not addressed.
---------------------------------------------------------------------------
\36\ An Examination of the STB's Approach to Freight Rail Rate
Regul. & Options for Simplification (InterVISTAS Report),
InterVISTAS Consulting Inc., Sept. 14, 2016, available at <a href="https://www.stb.gov/wp-content/uploads/STB-Rate-Regulation-Final-Report.pdf">https://www.stb.gov/wp-content/uploads/STB-Rate-Regulation-Final-Report.pdf</a>.
---------------------------------------------------------------------------
Finally, AAR repeats its arguments that the Board must conduct a
cost-benefit analysis. (See AAR SNPRM Comment 19.) The Board's
responses in the SNPRM continue to apply, including the fact that
Executive Order 12866 does not apply to ``independent regulatory
agencies'' such as the Board, see 49 U.S.C. 1301(a), and that the Board
has carefully considered the need for regulatory reform, FORR's
anticipated benefits and burdens, and alternative approaches, including
the comparison group approach proposed in Docket No. EP 665 (Sub-No.
2). See SNPRM, EP 755 et al., slip op. at 49 n.75. It is true that the
SNPRM did not address AAR's reliance on the Policies and Procedures for
Rulemakings of the U.S. Department of Transportation (DOT). But as AAR
acknowledged (AAR NPRM Comment 26), DOT's requirements do not apply to
the Board. See also Vt. Yankee Nuclear Power Corp. v. Nat'l Res. Def.
Council, 435 U.S. 519, 524-25, 543-48 (1978) (``Agencies are free to
grant additional procedural rights in the exercise of their discretion,
but reviewing courts are generally not free to impose them if the
agencies have not chosen to grant them.'').
Docket No. EP 665 (Sub-No. 2)
The Board received no further comment on its proposal to close
Docket No. EP 665 (Sub-No. 2), and therefore will proceed to terminate
that proceeding. As noted in the SNPRM, the Board may revisit some of
the ideas presented in Docket No. EP 665 (Sub-No. 2) depending on
future developments and whether additional steps in the small rate
dispute context appear necessary.
Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612,
generally requires a description and analysis of new rules that would
have a significant economic impact on a substantial number of small
entities. In drafting a rule, an agency is required to: (1) assess the
effect that its regulation will have on small entities; (2) analyze
effective alternatives that may minimize a regulation's impact; and (3)
make the analysis available for public comment. Sections 601-604. In
its notice of proposed rulemaking, the agency must either include an
initial regulatory flexibility analysis, section 603(a), or certify
that the proposed rule would not have a ``significant impact on a
substantial number of small entities,'' section 605(b). The impact must
be a direct impact on small entities ``whose conduct is circumscribed
or mandated'' by the proposed rule. White Eagle Coop. v. Conner, 553
F.3d 467, 480 (7th Cir. 2009).
In the SNPRM, the Board certified under 5 U.S.C. 605(b) that the
proposed rule would not have a significant economic impact on a
substantial number of small entities within the meaning of the RFA.\37\
The Board explained that its proposed changes to its regulations would
not mandate or circumscribe the conduct of small entities. The rule
requires no additional recordkeeping by small railroads or any
reporting of additional information. Nor do these rules circumscribe or
mandate any conduct by small railroads that is not already required by
statute: the establishment of reasonable transportation rates when a
carrier is found to be market dominant. As the Board noted, small
railroads have always been subject to rate reasonableness complaints
and their associated litigation costs, the latter of which the Board
expects will be reduced through the use of this procedure.
---------------------------------------------------------------------------
\37\ For the purpose of RFA analysis for rail carriers subject
to Board jurisdiction, the Board defines a ``small business'' as
only including those rail carriers classified as Class III rail
carriers under 49 CFR part 1201, General Instructions Sec. 1-1. See
Small Entity Size Standards Under the Regul. Flexibility Act, EP 719
(STB served June 30, 2016).
---------------------------------------------------------------------------
Additionally, the Board concluded (as it has in past proceedings)
that the majority of railroads involved in these rate proceedings are
not small entities within the meaning of the Regulatory Flexibility
Act. SNPRM, EP 755 et al., slip op. at 50-51 (citing Simplified
Standards, EP 646 (Sub-No. 1), slip op. at 33-34). Since the inception
of the Board in 1996, only three of the 51 cases filed challenging the
reasonableness of freight rail rates have involved a Class III rail
carrier as a defendant. Those three cases involved a total of 13 Class
III rail carriers. The Board estimated that there are approximately 656
Class III rail carriers. Therefore, the Board certified under 5 U.S.C.
605(b) that the proposed rule, if promulgated, would not have a
significant economic impact on a substantial number of small entities
within the meaning of the RFA.
This final rule adopts the approach proposed in the SNPRM, and the
same basis for the Board's certification in the SNPRM applies to the
final rule. Therefore, the Board certifies under 5 U.S.C. 605(b) that
the final rule will not have a significant economic impact on a
substantial number of small entities within the meaning of the RFA. A
copy of this decision will be served upon the Chief Counsel for
Advocacy, Office of Advocacy, U.S. Small Business Administration,
Washington, DC 20416.
Paperwork Reduction Act
In this proceeding, the Board modifies an existing collection of
information that was approved by the Office of Management and Budget
(OMB) under the collection of Complaints (OMB Control No. 2140-0029).
In the NPRM, the Board sought comments pursuant to the Paperwork
Reduction Act (PRA), 44 U.S.C. 3501-3549, and OMB regulations at 5 CFR
1320.8(d)(3) regarding: (1) whether the collection of information, as
modified in the proposed rule in the Appendix, is necessary for the
proper performance of the functions of the Board, including whether the
collection has practical utility; (2) the accuracy of
[[Page 314]]
the Board's burden estimates; (3) ways to enhance the quality, utility,
and clarity of the information collected; and (4) ways to minimize the
burden of the collection of information on the respondents, including
the use of automated collection techniques or other forms of
information technology, when appropriate. No further comments were
received following the SNPRM.
This modification and extension request of an existing, approved
collection will be submitted to OMB for review as required under the
PRA, 44 U.S.C. 3507(d), and 5 CFR 1320.11. The request will address the
comment discussed in the SNPRM as part of the PRA approval process. See
SNPRM, EP 755 et al., slip op. at 51-52.
Congressional Review Act
Pursuant to the Congressional Review Act, 5 U.S.C. 801-808, the
Office of Information and Regulatory Affairs has designated this rule
as non-major, as defined by 5 U.S.C. 804(2).
It is ordered:
1. The Board adopts the final rule as set forth in this decision.
Notice of the adopted rule will be published in the Federal Register.
2. A copy of this decision will be served upon the Chief Counsel
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
3. The final rule in Docket No. EP 755 is effective March 6, 2023.
4. The termination of Docket No. EP 665 (Sub-No. 2) is effective on
January 3, 2023.
Decided: December 19, 2022.
By the Board, Board Members Fuchs, Hedlund, Oberman, Primus, and
Schultz. Board Members Fuchs and Schultz dissented with separate
expressions.
BOARD MEMBER FUCHS, dissenting:
Congress has entrusted the Board with the responsibility to
regulate rail carriers' rates, and it has set broad criteria under
which the Board is to apply its expertise and judgment.\1\ This final
rule (FORR Final Rule) is the culmination of diligent work and tireless
leadership to reform the Board's approach to rate review. Recognizing
the potential benefits of reform, as well as the importance of further
stimulating new ideas, I voted to propose FORR and twice solicit public
comment.\2\ After careful consideration of those comments, however, I
have concluded that FORR is not the answer. FORR is an evasion of the
Board's fundamental responsibility because it makes the Board entirely
dependent on litigants' self-determined rate review methodologies,
gives little meaningful guidance for those methodologies, and prohibits
the Board from devising its own remedy where necessary. Making matters
worse, FORR subjects those litigants to a process with intensified and
unequal pressure, thereby incentivizing them to prioritize litigation
strategy over their best interpretation of facts and statutory
criteria. This deeply flawed, all-or-nothing process immediately
generates uncertainty for industry participants, and it presents unique
risks that its pressures and precedent will cause significant negative
effects on our nation's rail network. Rather than issuing FORR Final
Rule, the Board should have recognized the irreparable problems with
FORR and instead pursued other reforms while it facilitates an
additional process to resolve rate disputes via the agency's new
arbitration program.
---------------------------------------------------------------------------
\1\ See 49 U.S.C. 10101 (rail transportation policy); 49 U.S.C.
10701(d)(2) (listing the Long-Cannon factors); 49 U.S.C. 10701(d)(3)
(directing the Board to establish ``one or more simplified and
expedited methods for determining the reasonableness of challenged
rail rates in those cases in which a full stand-alone cost
presentation is too costly, given the value of the case''); 49
U.S.C. 10702 (jurisdiction to establish reasonable rates); 49 U.S.C.
10704(a)(2) (requiring the Board to make an ``adequate and
continuing effort'' to assist carriers in attaining adequate revenue
levels).
\2\ See NPRM, EP 755 et al.; SNPRM, EP 755 et al.
---------------------------------------------------------------------------
Though the Board has stated its role in regulating rates is to
serve as ``guardian of the public interest,'' \3\ FORR reduces the
agency to mere passive, all-or-nothing selections based only on
litigants' methodologies and proposed remedies. In FORR, the Board does
not set its own methodology that gives clear, specific meaning to the
statutory criteria, and FORR Final Rule argues that the Board similarly
does not have a defined methodology in reasonable practice and common
carrier obligation disputes. However, in those types of cases, unlike
in FORR, the Board retains discretion to best implement the relevant
statutory criteria because it may reject parts or all of parties'
arguments and devise its own remedy based on its expertise and
judgment. FORR Final Rule further argues that the Board currently gives
up discretion in the Three-Benchmark rate review methodology because it
uses a final offer process for picking comparison groups. However, when
it established Three-Benchmark, the Board exercised considerable
discretion to guard the public interest and give specific meaning to
statutory criteria--based on its own expertise and judgement--by, among
other things, defining a formula that accounts for the level of revenue
adequacy to be achieved through a rail carrier's rate-setting.\4\ By
contrast, FORR offers little useful guidance, let alone a methodology,
on fundamental concepts like revenue adequacy and differential
pricing.\5\ FORR is unique among the agency's processes in that the
Board evades responsibility on both the front and back ends--neither
defining methodologies in advance nor permitting the Board's own
remedies in individual cases.
---------------------------------------------------------------------------
\3\ See Pub. Serv Co. of Colo. v. Burlington N. & Santa Fe Ry.,
NOR 42057, slip op. at 3-4 (STB served Jan. 19, 2005) (in the rate
reasonableness context, the Board's ``role as the guardian of the
public interest in unchanged,'' in that, like its predecessor, it is
``expected to be directly and immediately concerned with the outcome
of virtually all proceedings conducted before it. . . . not . . . a
passive arbiter but the guardian of the general public interest,
with a duty to see that this interest is at all times effectively
protected'' (internal citations omitted)).
\4\ See Rate Guidelines--Non-Coal Proceedings, EP 347 (Sub-No.
2), 1 STB 1004, 1027-34 (1996) (describing RSAM, the revenue
shortfall allocation method); id. at 1042 (describing the revenue
need adjustment factor, which is the ratio of RSAM / R/
VC<INF>></INF><INF>180</INF>); id. at 1020 (listing how the proposed
factors implement the criteria including the Long-Cannon factors,
differential pricing, and revenue adequacy); see also Simplified
Standards for Rail Rate Cases, EP 646 (Sub-No. 1), slip op at 4-5
(STB served July 28, 2006) (discussing the rail transportation
policy, Long-Cannon factors, revenue adequacy, and the need to
establish a simplified and expedited method for determining rate
reasonableness in cases where a stand-alone cost presentation is too
costly, given the value of the case).
\5\ FORR Final Rule's comparison between FORR and ``Maximum
Markup Methodology,'' or MMM, is misplaced. See FORR Final Rule, EP
755 et al, slip op. at 11 (citing Major Issues in Rail Rate Cases,
EP 657 (Sub-No. 1), slip op. at 14-15, (STB served Oct. 30, 2006),
aff'd sub nom. BNSF Ry. v. STB, 526 F.3d 770 (D.C. Cir. 2008)); see
also Major Issues, EP 657 (Sub-No. 1), slip op at 9-11, 14-15, 23
n.44) (establishing, as one part of the Board's effort to address
six recurring issues in stand-alone cost (SAC) cases, MMM, which is
used to prescribe rates as part of the SAC methodology). First,
unlike FORR, SAC is a methodology in which the agency--using its
expertise and judgment--gives clear, specific meaning to the
statutory criteria by defining a railroad's revenue needs and
permissible differential pricing through the prism of contestability
theory and so-called constrained market pricing (i.e., based on a
stand-alone railroad's revenue needs). Second, again unlike FORR,
the Board in a SAC case arrives at the amount of excess revenue,
subject to MMM, only after using its expertise and judgment to
resolve many individual disputes, often involving hundreds of small
details. It is not forced to simply take a litigant's entire
presentation.
---------------------------------------------------------------------------
Not only does FORR turn over the Board's responsibility to
litigants, it diminishes the Board's ability to pick the best outcome
based on the litigants' presentations. In a FORR case, suppose the
Board, relying on a litigant's rate reasonableness methodology, finds a
rate unreasonable. The Board would then turn to the litigants' final
offers to prescribe the maximum rate. However, in FORR, the maximum
rate need not
[[Page 315]]
arise out of litigants' rate reasonableness methodologies. Instead,
litigants' final offers can use different reasoning, or even altogether
different methodologies. They must simply submit ``explanation and
support for'' their final offers. See FORR Final Rule, EP 755 et al.,
slip op. at 19, 38. This may lead to suboptimal outcomes. For example,
in one scenario, FORR requires the Board to prescribe a maximum rate
using a litigant's final offer even when a litigant's rate
reasonableness methodology readily shows a different maximum rate that
the Board would view better implements the statutory criteria. In
another scenario, FORR prevents the Board from remedying an
unreasonable rate \6\ if the Board finds the complainant's final offer
does not have support, even though the statute requires a rail carrier
to establish reasonable rates. Thus, working within the binary
selection process that FORR imposes, in some cases the Board cannot
even select obvious, superior solutions or correct unreasonableness.
---------------------------------------------------------------------------
\6\ Here, the term ``unreasonable rate'' means that the Board
would find that rate unreasonable based on the methodologies
presented, not that the Board necessarily would issue a formal
ruling just on that matter.
---------------------------------------------------------------------------
Today's decision might accept these severe, unprecedented
limitations in hopes that a final offer framework--by virtue of its
design--will produce good outcomes, but FORR Final Rule offers
inadequate support for this proposition. The theory behind a final
offer framework is that the prospect of an all-or-nothing decision
imposes acute uncertainty and raises the costs of losing, such that
parties are more likely to settle and make presentations that converge
toward the middle ground.\7\ FORR Final Rule offers no evidence that a
final offer framework is welfare-improving in contexts similar to rate
regulation. If convergence were the sole desired effect, even FORR
Final Rule's supporting literature--largely based on public sector
bargaining and baseball arbitration--acknowledges the unresolved debate
over whether final offers converge.\8\ When cases are decided in the
absence of convergence, FORR may have unintended distributional
consequences across individual shippers because all-or-nothing final
offer frameworks have more variance than other processes--that is,
similarly-situated litigants have very different results because the
decision-maker is unable to split the difference where necessary.\9\
This dynamic has the potential to distort competition, particularly
among shippers.
---------------------------------------------------------------------------
\7\ ``Early proponents of final offer arbitration [(FOA)] argued
that FOA would lead to convergence in the offers of the two parties.
The theory originating with Stevens (1966) was that conventional
arbitration had a `chilling' effect on negotiations and offers
because the parties were motivated to make extreme offers when
facing an arbitrator who was thought to `split the difference.' ''
Comm'n on Health & Safety & Workers' Comp., Cal. Dep't Indus. Rels.,
Literature Review: Final Offer Arbitration, <a href="https://www.dir.ca.gov/chswc/basebalarbffinal.htm">https://www.dir.ca.gov/chswc/basebalarbffinal.htm</a> (last visited Dec. 16, 2022) (internal
citations omitted); but see id. (``[C]onvergence of the offers under
FOA compared to conventional arbitration is not a sufficient
condition for `better' decisions by the arbitrator given that the
arbitrator can choose only one or the other.''); see also Steven
Brams & Samuel Merrill, Equilibrium Strategies for Final-Offer
Arbitration: There is No Median Convergence, Mgmt. Sci. 927 (1983).
\8\ See Chetwynd, Baseball? An Analysis of Final-Offer
Arbitration, its Use in Major League Baseball & its Potential
Applicability to European Football Wage & Transfer Disputes, 20
Marquette Sports L. Rev. 109, 117, 134 (2009); Carrell & Bales,
Considering Final Offer Arbitration to Resolve Public Sector
Impasses in Times of Concession Bargaining, 28 Ohio State J. of
Disp. Resol. 1, 30-32 (2013).
\9\ Comm'n on Health & Safety & Workers' Comp., supra.
---------------------------------------------------------------------------
More alarmingly, FORR has a fundamental flaw in its framework--as
FORR Final Rule acknowledges, this process, unlike some other final
offer frameworks in different contexts, does not impose ``reciprocal
risks.'' See FORR Final Rule, EP 755 et al., slip op. at 19. If
participants in a final offer process do not have equivalent risks, the
more risk adverse party will likely give up more--not because its case
is worse--simply because an all-or-nothing process increases the
expected costs of losing.\10\ Here, the rail carrier appears to be the
more risk averse party because the range of outcomes in FORR are
limited to either the status quo or a rate reduction.\11\ As a result,
FORR may have an especially coercive, unequal effect on settlements and
final offers. In practice, to reduce the probability of losing to a
complainant's offer in its entirety, a rail carrier may be more likely
to pursue a middle ground that is not best for the network and other
shippers. Thus, in FORR, litigants--on whom the Board entirely relies--
are incentivized to pursue arguments and outcomes not based on their
best interpretation of market or network facts and the relevant
criteria but instead on litigation strategies.
---------------------------------------------------------------------------
\10\ See Henry S. Farber, An Analysis of Final Offer
Arbitration, J. of Conflict Resol. 683 (1980); see also Comm'n on
Health & Safety & Workers' Comp., supra (stating ``economic theory
as reviewed earlier suggests that the more risk averse party will
have poorer outcomes on average under this type of arbitration'' and
finding on a preliminary basis ``there would appear to be enough non
anecdotal evidence to conclude that baseball arbitration is neither
working satisfactorily nor producing fair'' outcomes); id. (citing
Amy Farmer Curry & Paul Pecornio, The Use of Final Offer Arbitration
as a Screening Device, J. of Conflict Resol. 655 (1993)).
\11\ That is not to say that, as FORR Final Rule outlines,
shippers do not experience any costs from the process or that
litigants do not have relationship reasons to reduce the potency of
this absence of reciprocity. However, as FORR Final Rule
acknowledges, there is no escaping that the potential effects on
rates are unequal. See FORR Final Rule, EP 755 et al., slip op. at
19-21.
---------------------------------------------------------------------------
Given these deep and irreparable flaws, FORR could have significant
negative consequences for the rail network. FORR's decisions are
precedential, so one litigant's rate reasonableness methodology--for
which the Board would not find best implements the statutory criteria,
let alone seek broader public comment or analyze effects across
carriers--could affect rail rates nationwide, potentially impacting
infrastructure and operations. Moreover, as noted above, the
intensified and unequal pressures in FORR could affect the network even
in the absence of a Board decision. Because FORR Final Rule does little
to define FORR's broad criteria or give guidance to litigants, effects
will be felt immediately in the form of particularly acute uncertainty.
Notably, final offer arbitration in Canada, as well as the Board's
arbitration program released today, largely avoid these problems.
Though both share some characteristics of the FORR process, both are
confidential, and--in the case of the Board's arbitration program--the
arbitration panel may devise a welfare-improving remedy distinct from
the parties' presentations.\12\ That is not to say that
confidentiality, and non-precedential decisions generally, ought to be
norm for the Board. However, where, as in FORR, the Board evades its
responsibility and sets forth a flawed process, the broader public
faces high risks of negative outcomes.
---------------------------------------------------------------------------
\12\ See Joint Pet. for Rulemaking to Establish a Voluntary Arb.
Program for Small Rate Disps., EP 765, slip op. at 57-60, 75 (STB
served December 19, 2022); Canada Transp. Act, S.C. 1996, c. 10, as
amended, Sec. 167 (Can.). Cf. FORR Final Rule, EP 755 et al., slip
op. at 1.
---------------------------------------------------------------------------
The Board's drastic shift to FORR is not justified by FORR Final
Rule's analysis. FORR Final Rule states that shippers need a more
accessible rate review option, but it does not fully analyze the extent
to which this need is the result of high litigation costs rather than
economic methodologies that have high standards for relief. The SNPRM
claims that the cost of Three-Benchmark appears to be one-eighth (and
possibly less) of the potential relief, and it is unclear whether FORR
Final Rule finds that this ratio makes the methodology cost-
prohibitive.\13\ If FORR Final Rule's
[[Page 316]]
accessibility statement is only about litigation costs, FORR Final Rule
does not establish that FORR would be less costly than Three-Benchmark.
Both have final offer components, but Three-Benchmark sets the basic
economic methodology in advance, whereas FORR requires litigants to
create their own methodology and reasoning. Further, many of FORR's
procedural changes that purport to reduce litigation costs, and other
changes suggested by the Rate Reform Task Force (RRTF), such as page
limits, are easily applied to Three-Benchmark.\14\ That the Board does
not simply streamline Three-Benchmark suggests that FORR Final Rule's
problem statement is perhaps less about costs and more about the
standards--even the economic foundations--of the Board's existing rate
review methodologies.\15\ However, despite robust ideas from both the
RRTF and the public, the Board does not explain why it is impractical
to improve the standards in the Board's existing methodologies, or--if
those methodologies are unsound--to create a new methodology. Without
fully analyzing the underlying the problem and available solutions, the
Board has insufficient basis for turning away from its traditional
reliance on methodologies, foregoing its discretion to devise its own
remedies, and relying on litigants to do the work of the agency.
---------------------------------------------------------------------------
\13\ See SNPRM, EP 755 et al., slip op. at 43 n.67 (``But the
most recently reported estimate of the cost to litigate a Three-
Benchmark case is actually $500,000 based on a case completed in
2010.'') (citing US Magnesium, L.L.C. Comment, V.S. Howard Kaplan 4,
Oct. 23, 2012, Rate Regul. Reforms, EP 715).
\14\ See RRTF Report 51-52 (discussing possible benefits of page
limits). The Board also does not engage with the possibility of
using statistical methods, extant data, and automation to improve
its rate review processes, as suggested by the RRTF and others. See,
e.g., RRTF Report 10, 24-30.
\15\ This is not meant imply that there is not room for
potential improvements to the Three-Benchmark methodology. Indeed,
shippers, railroads, and Board staff have all suggested new
approaches to a comparison group methodology. (See NGFA Reply 6-7;
AAR Comment, Oct. 22, 2019); see also AAR Comment 79-80, Nov. 26,
2019, Hearing on Revenue Adequacy, EP 761; Rail Transportation of
Grain, Rate Regulation Review, EP 665 (Sub-No. 1), slip op. at 12-15
(STB served Aug. 31, 2016); RRTF Report 20-21.
---------------------------------------------------------------------------
Though I disagree with FORR Final Rule, I am not proposing to do
nothing. I support facilitating an additional process to resolve rate
disputes via the agency's new arbitration program. Given today's
decisions, I find the best way forward is to continue to pursue a new
or revised rate review methodology, as well as other actions that can
improve the Board's regulations. The Board has before it several ideas
from the RRTF, contracted experts, and the broader public. I favor
streamlined processes for rate review and clear rules--specified,
practical methodologies and standards that both protect the broader
public and allow industry participants to operate their businesses and
resolve disputes absent further government intervention. Rate review
reform efforts, and the broader consideration of the Board's role in
regulating the rail industry, must not stop because of a deeply flawed,
highly risky final rule. I respectfully dissent.
BOARD MEMBER SCHULTZ, dissenting:
For several years, shippers and other interested parties have
repeatedly informed the Board that the Board's current options for
challenging the reasonableness of rates do not meet their need for an
expeditious resolution at a reasonable cost. While I am aware of the
need for additional methodologies, I respectfully dissent from today's
decision to finalize Final Offer Rate Review (FORR).
The Board issued its Supplemental Notice of Proposed Rulemaking
(SNPRM) in this proceeding concurrently with the Notice of Proposed
Rulemaking in Joint Petition for Rulemaking to Establish a Voluntary
Arbitration Program for Small Rate Disputes, Docket No. EP 765, ``so
that both proposals may be considered simultaneously, including the
pros and cons of adopting--either with or without modification--the
voluntary arbitration rule, FORR, both proposals, or taking other
action.'' Final Offer Rate Review (SNPRM), EP 755 et al., slip op. at 8
(STB served Nov. 15, 2021). While I voted in favor of the FORR SNPRM, I
did so because I thought it was important to be able to meet with
stakeholders about both FORR and the Board's proposed small case rate
arbitration program (Arbitration) in Docket No. EP 765, as well as for
stakeholders to be able to review and comment on both proposals at the
same time. Id. at 54 (Board Member Schultz, concurring). I was not in
favor of the Board adopting both rules, and the Board's action today--
simultaneously issuing final rules in this docket and in Docket No. EP
765 while tying them together--is unprecedented and unnecessary. In so
doing, the Board has injected a level of uncertainty and
unpredictability into a process that should be predictable and
consistent. Moreover, I believe Arbitration is a much better option for
both shippers and carriers primarily because it affords the parties
their due process and statutory rights to be heard on the merits.\1\
The majority's decision to adopt FORR simultaneously with Arbitration
creates the possibility that while both programs will be enacted, FORR
could remain in law but go unused if all seven Class I carriers sign up
for Arbitration.\2\ It is for these reasons that I believe Arbitration
should have been advanced without the ``backstop'' of FORR. Beyond my
concerns about the rulemaking process, I also have deep legal and
practical concerns about FORR, which I believe prevents the Board from
engaging in reasoned decision-making, fails to properly align risk
between complainants and defendants, and could depress rail rates below
what is reasonable.
---------------------------------------------------------------------------
\1\ Unlike FORR, Arbitration will allow neutral arbitrators to
determine a reasonable rate as the Board does under the Board's
current options for challenging the reasonableness of rates.
\2\ Of course, if even one carrier declines to sign up for
Arbitration, that program instead will go unused.
---------------------------------------------------------------------------
Reasoned Decision-Making
The need for new rate review methodologies is well documented. In
September 2014, the Board commissioned an independent assessment of the
stand-alone rate reasonableness methodology as well as possible
alternatives that could reduce the time, complexity, and expense
involved in rate cases. In January 2018, Chairman Ann Begeman created
the Rate Reform Task Force to recommend improvements to existing
processes and to propose new rate review methodologies. And while the
need for alternatives to the existing methodologies is clear, that need
cannot supersede the Board's congressionally delegated authority to
either establish rates based upon its own best judgment or to
promulgate regulations allowing parties to seek similar relief through
a voluntary arbitration program, see 49 U.S.C. 11708. Unlike the
process in Arbitration, FORR would require the Board to choose between
two rates--even if the Board finds the correct outcome falls above,
below, or somewhere in between the two submissions. It is this
limitation on the Board's ability to exercise its own judgment by
weighing each side's arguments, evaluating the evidence, and
considering both the public interest and rail transportation policy
that I find to be so troubling. Agencies must engage in reasoned
decision-making. See Motor Vehicle Mfrs. Ass'n of U.S. v. State Farm
Mut. Auto. Ins. Co., 463 U.S. 29, 52 (1983). While the Board, after
finding a challenged rate to be unlawful, has the discretion to
determine the ``maximum rate . . . to be followed,'' 49 U.S.C.
10704(a)(1), the Board must ``exercise its
[[Page 317]]
discretion in a reasoned manner.'' Judulang v. Holder, 565 U.S. 42, 53
(2011). The Board's ability to discern the best outcome and remain
evenhanded will depend upon the reasonableness of the submissions made
by the parties themselves. And while the majority continues to presume
that ``FORR would not reward extreme positions'' and that ``parties
likely would have greater success by presenting more moderate
proposals,'' SNPRM, EP 755 et al., slip op. at 17, I am not convinced
this will be the case in all instances. See also FORR Final Rule, EP
755 et al., slip op. at 9 (``[A] final offer selection process would
discourage extreme positions . . . .''). Perhaps more importantly, I
believe the Board's congressionally authorized responsibility to
provide regulatory oversight of rates requires more than a reliance
upon two submitted proposals. It requires the Board to actually
exercise its discretion and decision-making authority.
Alignment of Risk
The majority believes that FORR--like the final-offer arbitration
(or ``baseball arbitration'') process on which FORR is based--will not
reward extreme positions, thereby incentivizing both parties to submit
their most reasonable rate to the Board. See, e.g., id. at 6, 9.
However, unlike baseball arbitration, in which each side has something
to lose because the arbitrator can select an offer that puts either
side in a worse position than it occupied pre-arbitration, in a FORR
case, the Board is not authorized to prescribe a rate higher than the
challenged rate. Therefore, a FORR complainant has no risk of a
decision that places it in a worse position. Without that risk, a FORR
complainant literally has nothing to lose and, therefore, no reason to
moderate their position, especially when the Board will only consider
the final offers after it has already found the challenged rate to be
unreasonable. By the same token, the defendant carrier will know that
the complainant has no incentive to moderate its position. This could
result in a Class I carrier submitting a lower offer than it otherwise
would to reduce the risk that the Board will select the complainant's
extreme position. If FORR systematically pushes carriers to submit
lower offers without encouraging shippers to submit higher offers, the
effect over time would be to depress railroad rates--not due to rates
being unreasonable, but merely because of the structure of FORR itself.
Moreover, because these decisions will not be confidential, they will
most likely impact rates throughout the freight rail network for years
if not decades to come, resulting in inconsistent and unpredictable
rate setting.\3\
---------------------------------------------------------------------------
\3\ I also believe that the Board and stakeholders are
underestimating the demand that multiple FORR cases will place on
the Board's docket. The FORR Final Rule sets out that the Board will
issue decisions 90 days after the receipt of replies--I question
whether that goal will be achievable if the Board faces even a few
FORR cases at the same time, and I am concerned that FORR cases may
easily overwhelm the Board's ability to deliberate on other matters
in a timely manner.
---------------------------------------------------------------------------
Conclusion
The need for a streamlined, cost-effective dispute resolution
process that provides both consistent deliberation of evidence and
reliable outcomes is clear. But that need should not be met by a
process that restricts the Board's ability to exercise its own
independent judgment and requires it to render a decision proposed by
only one of the parties. The majority's decision today means that the
Board could be faced with two extreme and undesirable outcomes with no
choice but to select one. Without the discretion to ensure that rates
prescribed in FORR cases are reasonable, FORR could operate to depress
rail rates below what is needed for carriers to invest in, maintain, or
even improve the rail network.
Kenyatta Clay,
Clearance Clerk.
List of Subjects
49 CFR Part 1002
Administrative practice and procedure, Common Carriers, Freedom of
information.
49 CFR Part 1111
Administrative practice and procedure, Investigations.
49 CFR Part 1114
Administrative practice and procedure.
49 CFR Part 1115
Administrative practice and procedure.
For the reasons set forth in the preamble, the Surface
Transportation Board amends parts 1002, 1111, 1114, and 1115 of title
49, chapter X, of the Code of Federal Regulations as follows:
PART 1002--FEES
0
1. The authority citation for part 1002 continues to read as follows:
Authority: 5 U.S.C. 552(a)(4)(A), (a)(6)(B), and 553; 31 U.S.C.
9701; and 49 U.S.C. 1321. Section 1002.1(f)(11) is also issued under
5 U.S.C. 5514 and 31 U.S.C. 3717.
0
2. Amend Sec. 1002.2 by revising paragraph (f)(56) to read as follows:
Sec. 1002.2 Filing fees.
* * * * *
(f) * * *
------------------------------------------------------------------------
Type of proceeding Fee
------------------------------------------------------------------------
* * * * * * *
PART V: Formal Proceedings:
(56) A formal complaint alleging unlawful rates or
practices of carriers:
(i) A formal complaint filed under the coal rate $350
guidelines (Stand-Alone Cost Methodology) alleging
unlawful rates and/or practices of rail carriers
under 49 U.S.C. 10704(c)(1)........................
(ii) A formal complaint involving rail maximum rates 350
filed under the Simplified-SAC methodology.........
(iii) A formal complaint involving rail maximum 150
rates filed under the Three Benchmark methodology..
(iv) A formal complaint involving rail maximum rates 150
filed under the Final Offer Rate Review procedure..
(v) All other formal complaints (except competitive 350
access complaints).................................
(vi) Competitive access complaints.................. 150
(vii) A request for an order compelling a rail 350
carrier to establish a common carrier rate.........
------------------------------------------------------------------------
[[Page 318]]
* * * * *
PART 1111--COMPLAINT AND INVESTIGATION PROCEDURES
0
3. The authority citation for part 1111 is revised to read as follows:
Authority: 49 U.S.C. 10701, 10704, 11701 and 1321.
0
4. Amend Sec. 1111.3 by revising paragraph (c) to read as follows:
Sec. 1111.3 Amended and supplemental complaints.
* * * * *
(c) Simplified standards. A complaint filed under Simplified-SAC or
Three-Benchmark may be amended once before the filing of opening
evidence to opt for a different rate reasonableness methodology, among
Three-Benchmark, Simplified-SAC, or stand-alone cost. If so amended,
the procedural schedule begins again under the new methodology as set
forth at Sec. Sec. 1111.9 and 1111.10. However, only one mediation
period per complaint shall be required. A complaint filed under Final
Offer Rate Review may not be amended to opt for Three-Benchmark,
Simplified-SAC, or stand-alone cost, and a complaint filed under Three-
Benchmark, Simplified-SAC, or stand-alone cost may not be amended to
opt for Final Offer Rate Review.
0
5. Amend Sec. 1111.5 by revising paragraphs (a), (b), (c), and (e) to
read as follows:
Sec. 1111.5 Answers and cross complaints.
(a) Generally. Other than in cases under Final Offer Rate Review,
which does not require the filing of an answer, an answer shall be
filed within the time provided in paragraph (c) of this section. An
answer should be responsive to the complaint and should fully advise
the Board and the parties of the nature of the defense. In answering a
complaint challenging the reasonableness of a rail rate, the defendant
should indicate whether it will contend that the Board is deprived of
jurisdiction to hear the complaint because the revenue-variable cost
percentage generated by the traffic is less than 180 percent, or the
traffic is subject to effective product or geographic competition. In
response to a complaint filed under Simplified-SAC or Three-Benchmark,
the answer must include the defendant's preliminary estimate of the
variable cost of each challenged movement calculated using the
unadjusted figures produced by the URCS Phase III program.
(b) Disclosure with Simplified-SAC or Three-Benchmark answer. The
defendant must provide to the complainant all documents that it relied
upon to determine the inputs used in the URCS Phase III program.
(c) Time for filing; copies; service. Other than in cases under
Final Offer Rate Review, which does not require the filing of an
answer, an answer must be filed with the Board within 20 days after the
service of the complaint or within such additional time as the Board
may provide. The defendant must serve copies of the answer upon the
complainant and any other defendants.
* * * * *
(e) Failure to answer complaint. Other than in cases under Final
Offer Rate Review, which does not require the filing of an answer,
averments in a complaint are admitted when not denied in an answer to
the complaint.
* * * * *
0
6. Amend Sec. 1111.10 by adding paragraph (a)(3) to read as follows:
Sec. 1111.10 Procedural schedule in cases using simplified
standards.
(a) * * *
(3)(i) In cases relying upon the Final Offer Rate Review procedure
where the complainant elects streamlined market dominance:
(A) Day -25--Complainant files notice of intent to initiate case
and serves notice on defendant.
(B) Day 0--Complaint filed; discovery begins.
(C) Day 35--Discovery closes.
(D) Day 49--Complainant's opening (rate reasonableness analysis,
final offer, and opening evidence on market dominance). Defendant's
opening (rate reasonableness analysis and final offer).
(E) Day 59--Parties' replies. Defendant's reply evidence on market
dominance.
(F) Day 66--Complainant's letter informing the Board whether it
elects an evidentiary hearing on market dominance.
(G) Day 73--Telephonic evidentiary hearing before an administrative
law judge, as described in Sec. 1111.12(d) of this chapter, at the
discretion of the complainant (market dominance).
(H) Day 149--Board decision.
(ii) In cases relying upon the Final Offer Rate Review procedure
where the complainant elects non-streamlined market dominance:
(A) Day -25--Complainant files notice of intent to initiate case
and serves notice on defendant.
(B) Day 0--Complaint filed; discovery begins.
(C) Day 35--Discovery closes.
(D) Day 49--Complainant's opening (rate reasonableness analysis,
final offer, and opening evidence on market dominance). Defendant's
opening (rate reasonableness analysis and final offer).
(E) Day 79--Parties' replies. Defendant's reply evidence on market
dominance.
(F) Day 169--Board decision.
(iii) In addition, the Board will appoint a liaison within five
business days after the Board receives the pre-filing notification.
(iv) The mediation period in Final Offer Rate Review cases is 20
days beginning on the date of appointment of the mediator(s). The Board
will appoint a mediator or mediators as soon as possible after the
filing of the notice of intent to initiate a case.
(v) With its final offer, each party must submit an explanation of
the methodology it used. If a complainant fails to submit explanation
and support for its offer, the Board may dismiss the complaint without
determining the reasonableness of the challenged rate.
* * * * *
0
7. Amend Sec. 1111.11 by revising paragraph (b) to read as follows:
Sec. 1111.11 Meeting to discuss procedural matters.
* * * * *
(b) Stand-alone cost or simplified standards complaints. In
complaints challenging the reasonableness of a rail rate based on
stand-alone cost or the simplified standards, the parties shall meet or
otherwise discuss discovery and procedural matters within 7 days after
the complaint is filed in stand-alone cost cases, 3 days after the
complaint is filed in Final Offer Rate Review cases, and 7 days after
the mediation period ends in Simplified-SAC or Three-Benchmark cases.
The parties should inform the Board as soon as possible thereafter
whether there are unresolved disputes that require Board intervention
and, if so, the nature of such disputes.
0
8. Amend Sec. 1111.12 by revising paragraphs (c), (d)(1), and (d)(2)
read as follows:
Sec. 1111.12 Streamlined market dominance.
* * * * *
(c) A defendant's reply evidence under the streamlined market
dominance approach may address the factors in paragraph (a) of this
section and any other issues relevant to market dominance. A
complainant may elect to submit rebuttal evidence on market dominance
issues except in cases under Final Offer Rate Review, which does not
provide for rebuttal. Reply and rebuttal filings under the streamlined
market dominance approach are each limited to 50 pages, inclusive of
exhibits and verified statements.
[[Page 319]]
(d)(1) Pursuant to the authority under Sec. 1011.6 of this
chapter, an administrative law judge will hold a telephonic evidentiary
hearing on the market dominance issues at the discretion of the
complainant in lieu of the submission of a written rebuttal on market
dominance issues. In cases under Final Offer Rate Review, which does
not provide for rebuttal, the telephonic evidentiary hearing is at the
discretion of the complainant.
(2) The hearing will be held on or about the date that the
complainant's rebuttal evidence on rate reasonableness is due, except
in cases under Final Offer Rate Review, where the hearing will be held
14 days after replies are due unless the parties agree on an earlier
date. The complainant shall inform the Board by letter submitted in the
docket, no later than 10 days after defendant's reply is due, whether
it elects an evidentiary hearing in lieu of the submission of a written
rebuttal on market dominance issues. In cases under Final Offer Rate
Review, the complainant shall inform the Board by letter submitted in
the docket, no later than 7 days after defendant's reply is due,
whether it elects an evidentiary hearing on market dominance issues.
* * * * *
PART 1114--EVIDENCE; DISCOVERY
0
9. The authority citation for part 1114 continues to read as follows:
Authority: 5 U.S.C. 559; 49 U.S.C. 1321.
0
10. Amend Sec. 1114.21 by adding paragraph (a)(4) to read as follows:
Sec. 1114.21 Applicability; general provisions.
(a) * * *
(4) Except as stated in Sec. 1114.31(a)(2)(iii), time periods
specified in this subpart do not apply in cases under Final Offer Rate
Review. Instead, parties in cases under Final Offer Rate Review should
serve requests, answers to requests, objections, and other discovery-
related communications within a reasonable time given the length of the
discovery period.
* * * * *
0
11. Amend Sec. 1114.24 by revising paragraph (h) to read as follows:
Sec. 1114.24 Depositions; procedures.
* * * * *
(h) Return. The officer shall either submit the deposition and all
exhibits by e-filing (provided the filing complies with Sec. 1104.1(e)
of this chapter) or securely seal the deposition and all exhibits in an
envelope endorsed with sufficient information to identify the
proceeding and marked ``Deposition of (here insert name of witness)''
and personally deliver or promptly send it by registered mail to the
Office of Proceedings. A deposition to be offered in evidence must
reach the Board not later than 5 days before the date it is to be so
offered.
* * * * *
0
12. Amend Sec. 1114.31 by revising paragraphs (a) and (d) to read as
follows:
Sec. 1114.31 Failure to respond to discovery.
(a) Failure to answer. If a deponent fails to answer or gives an
evasive answer or incomplete answer to a question propounded under
Sec. 1114.24(a), or a party fails to answer or gives evasive or
incomplete answers to written interrogatories served pursuant to Sec.
1114.26(a), the party seeking discovery may apply for an order
compelling an answer by motion filed with the Board and served on all
parties and deponents. Such motion to compel an answer must be filed
with the Board and served on all parties and deponents. Except as set
forth in paragraph (a)(2)(iii) of this section, such motion to compel
an answer must be filed with the Board within 10 days after the failure
to obtain a responsive answer upon deposition, or within 10 days after
expiration of the period allowed for submission of answers to
interrogatories. On matters relating to a deposition on oral
examination, the proponent of the question may complete or adjourn the
examination before he applies for an order.
(1) Reply to motion to compel generally. Except in rate cases to be
considered under the stand-alone cost methodology or simplified
standards, the time for filing a reply to a motion to compel is
governed by 49 CFR 1104.13.
(2) Motions to compel in stand-alone cost and simplified standards
rate cases. (i) Motions to compel in stand-alone cost and simplified
standards rate cases must include a certification that the movant has
in good faith conferred or attempted to confer with the person or party
failing to answer discovery to obtain it without Board intervention.
(ii) In a rate case to be considered under the stand-alone cost,
Simplified-SAC, or Three-Benchmark methodologies, a reply to a motion
to compel must be filed with the Board within 10 days of when the
motion to compel is filed.
(iii) In a rate case under Final Offer Rate Review, each party may
file one motion to compel that aggregates all discovery disputes with
the other party. Each party's motion to compel, if any, shall be filed
on the 10th day before the close of discovery (or, if not a business
day, the last business day immediately before the 10th day). The
procedural schedule will be tolled while motions to compel are pending.
Replies to motions to compel in Final Offer Rate Review cases must be
filed with the Board within 7 days of when the motion to compel is
filed. Upon issuance of a decision on motions to compel, the procedural
schedule resumes, and any party ordered to respond to discovery must do
so within the remaining 10 days in the discovery period.
(3) Conference with parties on motion to compel. Within 5 business
days after the filing of a reply to a motion to compel in a rate case
to be considered under the stand-alone cost methodology, Simplified-
SAC, or Three-Benchmark, Board staff may convene a conference with the
parties to discuss the dispute, attempt to narrow the issues, and
gather any further information needed to render a ruling.
(4) Ruling on motion to compel in stand-alone cost, Simplified-SAC,
and Three-Benchmark rate cases. Within 5 business days after a
conference with the parties convened pursuant to paragraph (a)(3) of
this section, the Director of the Office of Proceedings will issue a
summary ruling on the motion to compel discovery. If no conference is
convened, the Director of the Office of Proceedings will issue this
summary ruling within 10 days after the filing of the reply to the
motion to compel. Appeals of a Director's ruling will proceed under 49
CFR 1115.9, and the Board will attempt to rule on such appeals within
20 days after the filing of the reply to the appeal.
* * * * *
(d) Failure of party to attend or serve answers. If a party or a
person or an officer, director, managing agent, or employee of a party
or person willfully fails to appear before the officer who is to take
his deposition, after being served with a proper notice, or fails to
serve answers to interrogatories submitted under Sec. 1114.26, after
proper service of such interrogatories, the Board on motion and notice
may strike out all or any part of any pleading of that party or person,
or dismiss the proceeding or any part thereof. Such a motion may not be
filed in a case under Final Offer Rate Review. In lieu of any such
order or in addition thereto, the Board shall require the party failing
to act or the attorney advising that party or both to pay the
reasonable expenses, including attorney's fees, caused by the failure,
unless the Board finds that the failure
[[Page 320]]
was substantially justified or that other circumstances make an award
of expenses unjust.
* * * * *
PART 1115--APPELLATE PROCEDURES
0
13. The authority citation for part 1115 continues to read as follows:
Authority: 5 U.S.C. 559; 49 U.S.C. 1321; 49 U.S.C. 11708.
0
14. Amend Sec. 1115.3 by revising paragraph (e) to read as follows:
Sec. 1115.3 Board actions other than initial decisions.
* * * * *
(e) Petitions must be filed within 20 days after the service of the
action or within any further period (not to exceed 20 days) as the
Board may authorize. However, in cases under Final Offer Rate Review,
petitions must be filed within 5 days after the service of the action,
and replies to petitions must be filed within 10 days after the service
of the action.
* * * * *
[FR Doc. 2022-27926 Filed 1-3-23; 8:45 am]
BILLING CODE 4915-01-P
</pre></body>
</html>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.