Buffalo Crushed Stone, Inc. v. Surface Transportation Board

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 13, 1999 Decided October 29, 1999

No. 98-1505

Buffalo Crushed Stone, Inc.,

Petitioner

v.

Surface Transportation Board and

United States of America,

Respondents

R.J. Corman Railroad Company/Allentown Lines, Inc. and

Consolidated Rail Corporation,

Intervenors

On Petition for Review of an Order of the

Surface Transportation Board

William A. Mullins argued the cause for petitioner. With

him on the briefs was David C. Reeves.

Theodore K. Kalick, Attorney, Surface Transportation

Board, argued the cause for respondents. With him on the

brief were Henri F. Rush, General Counsel, Ellen D. Han-

son, Deputy General Counsel, Joel I. Klein, Assistant Attor-

ney General, U.S. Department of Justice, John J. Powers, III

and Robert J. Wiggers, Attorneys.

Jonathan M. Broder, Kevin M. Sheys, and Paul M. Lau-

renza were on the brief for intervenors.

Before: Ginsburg, Henderson and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: A Surface Transportation Board

regulation provides that rail abandonment notices containing

false information are "void ab initio" and must be "summarily

reject[ed]." In this case, although a false statement in a

notice of abandonment was not brought to the Board's atten-

tion until long after the notice was filed and the line sold to

another carrier, petitioner argues that the regulation requires

the Board to reject the notice and nullify the sale. Agreeing

with the Board that the regulation does not unambiguously

require that result and finding the Board's action neither

arbitrary nor capricious, we deny the petition for review.

I.

Rail carriers seeking to abandon rail lines must first re-

ceive authorization from the Surface Transportation Board.

Pursuant to 49 U.S.C. s 10903(d), the Board may affirmative-

ly approve an abandonment upon finding that it is permitted

by "public convenience and necessity." Alternatively, the

Board may expedite the process by granting the carrier

either an "individual" or "class" exemption from section

10903(d). See 49 U.S.C. s 10502. To initiate the expedited

class exemption procedure--the process involved in this

case--a carrier files with the Board a "notice of exemption,"

which must certify that no local traffic has moved over the

line for at least two years. See 49 C.F.R. s 1152.50(b). If a

notice of exemption contains false or misleading information,

section 1152.50(d)(3) of the Board's regulations provides--in

language central to this dispute--that "the use of the exemp-

tion is void ab initio and the Board shall summarily reject the

exemption notice." 49 C.F.R. s 1152.50(d)(3).

The Board alerts the public to a proposed "class exemp-

tion" abandonment by publishing a notice in the Federal

Register. See id. Publication affords interested parties a

chance to submit an offer of financial assistance, known as an

OFA, proposing to subsidize or purchase the line that is to be

abandoned. See 49 U.S.C. s 10904; 49 C.F.R. s 1152.27. If

a prospective purchaser and incumbent carrier agree to a

purchase that will maintain service, the Board approves the

sale and--again of significance to this case--dismisses the

notice of exemption. See 49 C.F.R. s 1152.27(f)(2).

In July 1996, Conrail filed a notice of exemption proposing

to abandon two rail lines running for several miles through

Erie County, New York. As required by section 1152.50(b),

Conrail's notice contained a certification that no traffic had

moved over the lines for the previous two years. Responding

to the Federal Register notice, R.J. Corman Railroad Compa-

ny/Allentown Lines, Inc. (RJCN) filed an OFA proposing to

acquire the two lines and to continue service. Conrail agreed

to sell the lines to RJCN, and the Board dismissed Conrail's

notice of exemption.

Approximately eighteen months later, petitioner Buffalo

Crushed Stone, a shipper located near one of the lines, filed a

petition with the Board to vacate Conrail's previously dis-

missed exemption notice. According to Buffalo, Conrail had

falsely certified that no traffic had moved across the lines for

the two years prior to the filing of the notice. Buffalo knew

the certification was false because it had shipped at least

twelve carloads of crushed stone over the lines during the

relevant two year period. Relying on section 1152.50(d)(3),

Buffalo argued that the exemption was "void ab initio" and

that the Board must "summarily reject" the notice. Buffalo

also urged the Board to revoke the sale to RJCN, since that

transfer resulted from OFA procedures that had been trig-

gered by the defective notice. Conrail never disputed the

falsity of the certification, claiming instead that the mistake

was "de minimis" and "inadvertent."

Buffalo also filed a formal complaint alleging that RJCN

had refused to provide service to it across one of the lines

acquired from Conrail and had discriminated against it by

demanding unreasonable rates. According to Buffalo, this

gave the Board an additional reason for revoking the sale.

Alternatively, Buffalo asked the Board to order RJCN to

provide it with trackage rights for reasonable fees.

The Board rejected Buffalo's petition to revoke the sale and

dismissed its complaint against RJCN. Although the Board

conceded that false information in an exemption notice nor-

mally results in a declaration that the notice is void ab initio,

it identified several reasons why such action was inappropri-

ate in the circumstances of this case. For one thing, vacating

the exemption notice and subsequent sale would unfairly

disadvantage RJCN, a bona fide purchaser who had acquired

the line under section 10904's OFA procedures. More gener-

ally, the Board found that nullifying the sale would cause

future OFA purchasers "to worry that their rights to the lines

they acquire might be abrogated months and perhaps years

later because of some defect in the underlying abandonment."

The Board feared this would discourage the use of OFAs,

thus "derogating section 10904." Finally, the Board pointed

out that Buffalo--the very party who had utilized Conrail's

lines and had actual knowledge of the certification's falsity--

waited almost two years to register its objection. Declining

to decide whether that factor alone would be dispositive, the

Board said that Buffalo's failure to challenge the notice in a

timely fashion supported denial of the petition.

Turning to Buffalo's complaint against RJCN, the Board

found the refusal of service and discrimination claims unsup-

ported by the record. Although Buffalo had asked for and

received a rate quote from RJCN, the Board found nothing in

the record indicating that Buffalo had either tendered traffic

to move over the line or discussed such traffic with RJCN.

The Board also noted that crushed stone, the commodity

Buffalo wanted to ship, is exempt from Board regulation, see

49 C.F.R. s 1039.11(a), and that under the circumstances of

this case the Board lacked jurisdiction to grant Buffalo

trackage rights.

In this petition for review, Buffalo does not challenge the

dismissal of its complaint against RJCN. It challenges only

the Board's denial of its petition, claiming that section

1152.50(d)(3) requires the Board to reject the exemption

notice and revoke the sale, and that the Board's failure to do

so was arbitrary and capricious.

II.

We begin by emphasizing our highly deferential standard

of review. An agency's interpretation of its own regulation

merits even greater deference than its interpretation of the

statute that it administers. See, e.g., Bush-Quayle Primary

Comm., Inc., v. FEC, 104 F.3d 448, 452 (D.C. Cir. 1997) ("The

call for deference is even greater where the agency is inter-

preting its own regulations."). Where "the meaning of [regu-

latory] language is not free from doubt," we will defer to the

agency's interpretation so long as it "sensibly conforms to the

purpose and wording of the regulations." Martin v. OSHRC,

499 U.S. 144, 150-51 (1991) (alteration in original) (internal

quotation marks omitted). We have even permitted an agen-

cy to infer the existence of a missing term in a regulation

when the inference found support in the regulation's purpose

and history. See Western Mass. Elec. Co. v. FERC, 165 F.3d

922 (D.C. Cir. 1999). But deference is not without limit. We

will reject an agency's interpretation if "an alternative read-

ing is compelled by the regulation's plain language or by

other indications of ... intent at the time of the regulation's

promulgation." Thomas Jefferson Univ. v. Shalala, 512 U.S.

504, 512 (1994) (internal quotation marks omitted).

According to Buffalo, section 1152.50(d)(3) admits of no

ambiguity. The regulation says quite plainly that if a notice

of exemption "contains false or misleading information, the

use of the exemption is void ab initio and the Board shall

summarily reject the exemption notice." 49 C.F.R.

s 1152.50(d)(3). Buffalo argues that, because it is undisputed

that Conrail's notice contained a false certification, the ex-

emption is "void ab initio," and that the Board must "sum-

marily reject" it and revoke the sale to RJCN.

Although at first glance section 1152.50(d)(3) does seem

unambiguous, the Board points out that it is not at all clear

how that provision should be applied in the unusual circum-

stances of this case. Beginning with the phrase "shall sum-

marily reject," the Board argues that the regulation "does not

address what action should be taken if rejection of the notice

is no longer an available or appropriate remedy due to

intervening circumstances." Rejection of the notice in this

case is not "an available or appropriate remedy" for an

obvious reason: the Board dismissed the notice when RJCN

purchased the lines (the "intervening circumstance"). The

Board's position is well taken. How can it reject a notice of

exemption that has long since been dismissed? Since it

cannot, we agree that in the circumstances of this case section

1152.50(d)(3) does not unambiguously require the Board to

"summarily reject the exemption notice."

This leaves the question whether the regulation requires

the Board to declare the notice "void ab initio." According

to Buffalo, because "[v]oid ab initio means that a notice based

on false information is void from the beginning, as if it never

existed," the OFA sale to RJCN must be nullified since that

transaction resulted from the filing of the defective exemption

notice. The Board responds that although "[o]ur practice of

revoking abandonments authorized pursuant to the class ex-

emption is predicated on the need to maintain the integrity of

the applicable regulations ... that purpose is not served

when upholding the class exemption can only be achieved at

the expense of derogating section 10904 of the statute." In

other words, the Board found that cancellation of the sale

would discourage the use of OFA procedures and thus under-

mine section 10904's goal of maintaining rail service. See The

Burlington Northern and Santa Fe Railway Company--

Abandonment Exemption--in King County, WA, STB Dock-

et No. AB-6 (Sub-No. 380X), 1998 WL 452837 (I.C.C.) (not-

ing that the "fundamental purpose of section 10904 [is] to

continue rail service").

Courts are not helpless captives when a literal application

of statutory language would subvert a regulatory scheme.

Where such a conflict exists, it is appropriate to consider the

purpose of the disputed provision and to construe the text

accordingly. See, e.g., Train v. Colorado Public Interest

Research Group, 426 U.S. 1, 24 (1976). Judge Learned Hand

put it this way:

Of course it is true that the words used, even in their

literal sense, are the primary, and ordinarily the most

reliable, source of interpreting the meaning of any writ-

ing.... But it is one of the surest indexes of a mature

and developed jurisprudence not to make a fortress out

of the dictionary; but to remember that statutes always

have some purpose or object to accomplish, whose sym-

pathetic and imaginative discovery is the surest guide to

their meaning.

Cabell v. Markham, 148 F.2d 737, 739 (2d Cir.), aff'd, 326 U.S.

404 (1945). Administrative agencies face similar interpretive

challenges and must be able to respond with similar resource-

fulness. See American Train Dispatchers Assoc. v. ICC, 54

F.3d 842, 850 (D.C. Cir. 1995) ("[A] regulatory interpretation

must be, among other things, consistent with the regulatory

scheme."). Demonstrating just that resourcefulness in this

case, the Board properly construed section 1152.50(d)(3) to

avoid undermining an independent statutory mandate.

Buffalo argues that "even if the Court finds that the Board

did have ... discretion [to uphold the notice of exemption],

the Board did not exercise its discretion in a rational man-

ner." We take this to mean that Buffalo thinks the Board

violated section 706(2)(A) of the Administrative Procedure

Act. See 5 U.S.C. s 706(2)(A). In support of its argument,

Buffalo contends that the Board's decision in this case depart-

ed from its practice of strictly enforcing section 1152.50(d)(3)

and failed "to take into account the prejudice sustained by

[Buffalo]." We disagree on both counts. Not one of the

cases cited by Buffalo for the proposition that the Board

always rejects exemption notices with false information in-

volved a completed OFA sale. Moreover, the Board's action

preserved the integrity of section 10904's OFA procedures,

protected a bona fide purchaser, and promoted the goals of

the statute. At the same time, the Board denied relief to a

party who, having slept on its rights, sought to abrogate a

long completed sale so that (as it freely admits) it could bid

on the lines itself.

The Board's articulation of a reasoned basis for its decision

distinguishes this case from Jost v. STB, No. 99-1054, slip

op., 1999 WL 961167 (D.C. Cir. Oct. 22, 1999). Decided just

last week, Jost involved a challenge to a notice of exemption

that was filed six days after the subject line was conveyed to

the Central Kansas Conservancy to be used as a trail, with

the possibility that rail service would be resumed in the

future. Relying on section 1152.50(d)(3), the challenge al-

leged that the notice of exemption was false and misleading

because it failed to inform the Board about right-of-way sales

by the railroad that potentially made the line unusable as a

trail and that might interfere with future rail service. The

Board declined to reopen the proceedings but failed to explain

why its discovery of the sales did not merit reconsideration of

its prior actions. We remanded so the Board could remedy

that deficiency. "The Board needs to articulate how it pro-

ceeds when faced with an allegation that sales of full-width

right-of-way have occurred, and why it believes that practice

is consistent with statutory requirements governing its juris-

diction.... At that point, if petitioners are still dissatisfied,

this court will have something to review." Jost v. STB, slip

op. at 14-15.

In this case, the Board has adequately articulated the

reasons for its decision. Because we find the Board's refusal

to cancel the sale neither arbitrary nor capricious, the petition

for review is denied.

So ordered.