Union Pacific Railroad Co. v. STB
Not yet available in print reporter (2024)
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Rule of Law:
An administrative agency's rate-setting procedure exceeds its statutory authority when it forces the agency to select one of two party-submitted final offers without modification, as this prevents the agency from independently exercising its judgment to 'prescribe' a rate as mandated by Congress and violates the Administrative Procedure Act's burden of proof requirements.
Facts:
- Congress has charged the Surface Transportation Board (Board) with resolving rate disputes between rail carriers and shippers.
- Because the Board's primary method for determining rate reasonableness, the Stand-Alone Cost test, was too complex and costly for smaller disputes, Congress directed the Board to create a simplified and expedited method.
- After prior simplified methods proved unpopular, the Board promulgated a new rule called Final Offer Rate Review (FORR).
- Under FORR, after a shipper files a complaint, both the shipper and the rail carrier submit their final offers for what they believe is a reasonable rate.
- If the Board finds the carrier has market dominance and the existing rate is unreasonable, it must then select either the shipper's or the carrier's final offer as the new maximum rate.
- The FORR rule explicitly prohibits the Board from modifying the selected offer or choosing a different rate, even if it believes the correct rate is between the two offers.
- Two of the five Board members dissented from the rule's adoption, arguing it was an abdication of the Board's statutory responsibility to set rates.
Procedural Posture:
- The Surface Transportation Board (Board), an administrative agency, adopted a final rule establishing a new procedure, Final Offer Rate Review (FORR), for resolving certain rail rate disputes.
- Union Pacific Railroad Company and the Association of American Railroads (collectively, 'petitioners') filed petitions for review of the Board's final rule in the United States Court of Appeals for the Eighth Circuit.
- The petitioners are challenging the rule, and the Board and the United States of America are the respondents.
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Issue:
Does the Final Offer Rate Review (FORR) procedure, which requires the Surface Transportation Board to resolve a rate dispute by selecting one of two final offers submitted by the parties without modification, exceed the Board's statutory authority under 49 U.S.C. § 10704(a)(1)?
Opinions:
Majority - Smith, Chief Judge
Yes, the Final Offer Rate Review (FORR) procedure exceeds the Board's statutory authority. The governing statute, 49 U.S.C. § 10704(a)(1), requires that 'the Board may prescribe the maximum rate,' which obligates the Board to exercise its own independent, expert judgment. FORR impermissibly delegates this prescriptive authority to the litigating parties by constraining the Board to a binary choice between their two offers, preventing it from setting a rate it determines is actually reasonable. This structure prevents the Board from giving 'due consideration' to the statutory Long-Cannon factors. Furthermore, the rate-setting proceeding is a formal adjudication under the Administrative Procedure Act (APA), which places the burden of proof on the proponent of an order (the shipper). FORR violates the APA because it does not require the shipper to bear the burden of persuasion that its final offer is the correct maximum reasonable rate.
Analysis:
This decision reinforces the fundamental administrative law principle that an agency's authority is strictly limited to what Congress has granted by statute. It clarifies that a statutory mandate for an agency to 'prescribe' a rate requires the active exercise of its own expert judgment, not passive arbitration between two private proposals. The ruling invalidates 'baseball-style' or 'final offer' arbitration as a permissible method for this agency's rate-setting, signaling that future simplified procedures must preserve the agency's ultimate decision-making power. By classifying the Board's 'full hearing' as a formal APA adjudication, the court also strengthens procedural protections for parties in these disputes, particularly regarding the burden of proof.
