Dhx, Inc. v. Surface Transportation Board

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

DHX, INC., 

Petitioner,

v.

No. 05-74592

SURFACE TRANSPORTATION BOARD;

UNITED STATES OF AMERICA,  STB No. WCC-105

Respondents, OPINION

MATSON NAVIGATION COMPANY,

INC.; HORIZON LINES,

Respondent-Intervenor.



On Petition for Review of an Order of the

Surface Transportation Board

Argued and Submitted

June 4, 2007—Pasadena, California

Filed August 30, 2007

Before: Sidney R. Thomas, Raymond C. Fisher, and

Ronald M. Gould, Circuit Judges.

Opinion by Judge Gould

10967

10970 DHX, INC. v. STB

COUNSEL

Rick A. Rude (argued and on the brief), Falls Church, Vir-

ginia, and David E.R. Woolley (on the brief), Los Angeles,

California, for petitioner DHX, Inc.

Craig M. Keats, Deputy General Counsel, Surface Transporta-

tion Board, Washington, D.C., (argued and on the brief);

DHX, INC. v. STB 10971

Ellen D. Hanson, General Counsel, Surface Transportation

Board, Jamie P. Rennert, Attorney, Surface Transportation

Board, Thomas O. Barnett, Acting Assistant Attorney Gen-

eral, Department of Justice, Gerald F. Masoudi, Deputy Assis-

tant Attorney General, Department of Justice, John J. Powers,

III, Attorney, Department of Justice and Robert J. Wiggers,

Attorney, Department of Justice, Washington, D.C., (on the

brief) for respondents Surface Transportation Board and

United States of America.

C. Jonathan Benner and Leonard L. Fleisig, Troutman Sand-

ers LLP, Washington, D.C., (argued and on the brief); Chris-

tine J. Sommer, Troutman Sanders LLP, Washington, D.C.,

(on the brief) for intervenor-respondent Horizon Lines, LLC.

Richard A. Allen and Scott M. Zimmerman, Zuckert, Scoutt

& Rasenberger, LLP, Washington, D.C., (on the brief) for

intervenor-respondent Matson Navigation Co., Inc.

OPINION

GOULD, Circuit Judge:

DHX, Inc., a freight forwarder, petitions for review of a

decision by the Surface Transportation Board (“STB”) deny-

ing its complaint challenging the reasonableness of certain

rates and practices of Matson Navigation Co., Inc.

(“Matson”), and Sea-Land Service, Inc., now Horizon Lines,

LLC (“Horizon”), two water carriers operating in the noncon-

tiguous domestic trade between Hawaii and ports in the conti-

nental United States. We have jurisdiction pursuant to 28

U.S.C. §§ 2321 and 2342(5), and we deny the petition for

review.

I. A

The STB is a successor to the Interstate Commerce Com-

mission (“ICC”). In the ICC Termination Act of 1995

10972 DHX, INC. v. STB

(“ICCTA”), Pub. L. No. 104-88, 109 Stat. 803, Congress

abolished the ICC, revised the Interstate Commerce Act, and

transferred regulatory functions under that Act to the STB.

See Redmond-Issaquah R.R. Pres. Ass’n v. STB, 223 F.3d

1057, 1059 n.1 (9th Cir. 2000). In 1976, Congress began par-

tially deregulating the industries that the ICC supervised, with

a view toward promoting competition. See H.R. Rep. No.

104-311, at 90-93 (1995), as reprinted in 1995 U.S.C.C.A.N.

793, 802-05 (“ICCTA House Report”); S. Rep. No. 104-176,

at 2-4 (1995) (“ICCTA Senate Report”). The ICCTA contin-

ued this general deregulatory trend and “significantly

reduce[d] regulation of surface transportation industries in

this country.” ICCTA Senate Report at 2.

Prior to the enactment of the ICCTA, the ICC had regula-

tory authority over water carriers who operated along the

coasts of the continental United States or on inland water-

ways. Water carriers who operated outside of the continental

United States, however, were regulated by the Federal Mari-

time Commission. The Federal Maritime Commission had

regulatory authority over all “port-to-port” operations of carri-

ers serving the “noncontiguous domestic trade” (or the “do-

mestic offshore” trade), i.e. operations between ports in

Alaska, Hawaii, or United States territories or possessions on

the one hand, and other United States ports, including main-

land ports, on the other hand. The ICCTA centralized all regu-

latory authority relating to the noncontiguous domestic trade

with the STB. See 49 U.S.C. § 13521.

In doing so, Congress reenacted some, but not all, of the

pre-ICCTA regulatory provisions regarding the noncontigu-

ous domestic trade. In keeping with its trend toward reducing

unnecessary regulation, Congress removed some of the regu-

latory restraints previously imposed upon water carriers.

Moreover, Congress affirmatively authorized the water carri-

ers to undertake some market-driven activities that motor and

rail carriers had already been allowed to pursue after the

enactment of earlier legislation. Thus, under the ICCTA,

DHX, INC. v. STB 10973

water carriers in the noncontiguous domestic trade remain

subject to three main regulatory requirements: (1) like all

common carriers, they must “provide [ ] transportation or ser-

vice on reasonable request,” see 49 U.S.C. § 14101(a); (2)

they are required to file tariffs, see 49 U.S.C. § 13702(a) and

(b); and (3) they are required to maintain “reasonable” rates

and practices, see 49 U.S.C. § 13701(a).

Despite these regulatory requirements, the ICCTA also

codifies a number of rate freedoms. 49 U.S.C. § 13701(d) is

a safe harbor provision, which specifies that any given rate is

deemed reasonable if it falls within a “zone of reasonable-

ness,” i.e. if it is not more than 7.5% higher or 10% lower

than what the rate was one year earlier. The ICCTA allows

carriers explicitly to offer rates that vary with the volume of

cargo offered over a specified period of time, see 49 U.S.C.

§ 13702(b)(4), and it allows carriers to enter into contracts in

which the parties can waive any or all of the rights or reme-

dies available under the Interstate Commerce Act, see 49

U.S.C. § 14101(b). Most importantly, with regard to DHX’s

petition for review, Congress repealed the statutory provisions

that had prohibited unreasonable discrimination in the non-

contiguous domestic water carrier trade when it enacted the

ICCTA. See 46 U.S.C. app. § 815 (repealed 1995).

I. B

While some shipments via water carrier are arranged

between the carrier and the shipper directly, others are han-

dled through a third-party intermediary such as a freight for-

warder. DHX is a freight forwarder, an entity that holds itself

out to the general public to provide transportation of property

for compensation, usually by assembling and consolidating

shipments to take advantage of volume rates offered by the

carrier actually hauling the goods. See 49 U.S.C. § 13102(8).

A freight forwarder “maintains the dual status of both carrier

(vis-à-vis its shippers) and shipper (vis-à-vis the underlying

carrier that it uses).” Exem. of Freight Forwarders From Tar-

10974 DHX, INC. v. STB

iff Filing Requir., 2 S.T.B. 48, 50 (1997). Therefore, DHX is

both a user and a competitor of water carriers such as Matson

and Horizon to which it tenders traffic.

In the water trade, freight forwarders aggregate smaller

shipments at the point of origin, buy space on a vessel, and

then provide distribution services at the destination. Freight

forwarders earn a profit when the rates they charge to individ-

ual shippers are lower than the water carrier’s rates for small

shipments, but higher than the water carrier’s rates for the

consolidated containerloads that the forwarders assemble. See

Chi., Milwaukee, St. Paul & Pac. R.R. v. Acme Fast Freight,

Inc., 336 U.S. 465, 467 (1949); N. Y. Foreign Freight For-

warders & Brokers Ass’n v. ICC, 589 F.2d 696, 699-700

(D.C. Cir. 1979). The use of a freight forwarder can benefit

the shipper by allowing it to pay rates lower than it could

obtain on its own for shipments in small lots, while also bene-

fitting the carrier, who is then free to focus its business on the

high-volume containerload traffic that is most efficient for it

to handle while the freight forwarder consolidates smaller

shipments.

The dispute underlying this appeal is between freight for-

warder DHX and the two major water carriers currently serv-

ing the Hawaiian water trade market, Matson and Horizon.

The noncontiguous domestic trade between Hawaii and the

mainland is experiencing a relatively low volume of traffic,

resulting in excess capacity, which in turn, has exerted down-

ward pressure on rates. See generally U.S. Dep’t of Transp.,

A Report to Congress: Competition in the Noncontiguous

Domestic Maritime Trades, at III-8-14 (1997) (“DOT Report”).1

This downward pressure led to rates in 1995 that were sub-

1

Although the fact that there are only two major water carriers currently

operating in the Hawaiian market reflects “some concentration in trade,”

the United States Department of Transportation’s 1997 Report explains

that there has been entry into and exit from the Hawaiian water carrier

market over the years. DOT Report at III-8-14.

DHX, INC. v. STB 10975

stantially below the inflation-adjusted rate levels in 1985. See

id. To address these market constraints and to maximize prof-

itable traffic, Matson and Horizon tailored their rates to attract

profitable traffic away from freight forwarders as well as to

draw traffic away from each other. To attract and keep larger

shippers like Home Depot that can provide a steady flow of

full containerload (“FCL”) traffic, the water carriers began

offering volume rates with “overflow provisions.”

Overflow occurs when a particular shipper’s traffic for a

given shipment does not completely fill all the containers

used for that shipment. For example, Home Depot’s traffic for

a particular shipment might fill more than one full container,

but less than two. When such overflow occurs, the water car-

riers charge Home Depot a rate on the second, partially-filled

container that is lower than the rate that would apply to a

partially-filled container that is not part of a larger shipment

by using their overflow provisions. According to the carriers,

the purpose of overflow provisions is “to accommodate the

needs of those regular, high-volume shippers,” who are the

water carriers’ best customers.

As the STB explained in its June 2005 decision, once DHX

recognized that lower rates were being charged for partially

filled containers that were part of a larger shipment under

Matson and Horizon’s overflow provisions, DHX “began to

go beyond the traditional role of a freight forwarder . . . and

to instead target the water carriers’ larger customers that

already tendered volume traffic to the carriers [directly].”

Specifically, DHX would take the same containerload traffic

of large shippers such as Home Depot, unpack the full con-

tainers, redistribute their contents, and repack them in order

to create more overflow containers than the shippers them-

selves would have tendered had they dealt directly with the

water carriers, thereby resulting in a larger number of contain-

ers subject to the lesser overflow rates. According to Matson,

at one point upwards of 98% of its revenues for overflow traf-

fic was coming from freight forwarders rather than from the

10976 DHX, INC. v. STB

regular direct shippers that the overflow provisions were

designed to accommodate. As the STB explained in its

December 2004 decision:

When defendants [Matson and Horizon] realized

they were losing some of the profits from their FCL

traffic to competitors such as DHX . . . they began

taking specific actions designed to induce their FCL

shippers to begin dealing directly with them again.

Such actions included adopting tariffs setting up

more favorable rates with specific limitations such as

shipper name, street address, and zip code; and

entering into agreements—typically with large ship-

pers that own the merchandise and have their own

logistics departments that manage the transportation

and control the routing of their cargo—providing

particular rates for specified periods of time.

Despite these actions, Horizon and Matson still continued to

offer substantial discounted rates to DHX and other freight

forwarders in order to attract traffic away from each other.

I. C

DHX filed a complaint with the STB in October 1999

against Matson and Horizon challenging the reasonableness

of their rates and practices. The complaint largely focused on

the increases Matson and Horizon had made to their overflow

rates, arguing that the increases should be declared unreason-

able because they exceeded the safe-harbor zone of reason-

ableness contained in 49 U.S.C. § 13701(d)(1). Matson and

Horizon promptly filed motions to dismiss. On December 21,

2001, the Board issued a decision denying the motions to dis-

miss, but agreeing with the defendants that there were “sub-

stantial shortcomings in DHX’s complaint.” The decision

further stated that DHX would “have to flesh out the specific

rates for specific shipments that it asserts are unreasonable,

DHX, INC. v. STB 10977

and it will have to support with particularity its general claim

that the carriers’ practices are unlawful.”

DHX filed an amended complaint on April 29, 2002, which

in essence argued that any rate charged to DHX was unrea-

sonable if it exceeded the rate charged to another customer.

DHX also alleged that Matson and Horizon’s tariffs did not

comport with statutory and regulatory requirements. In addi-

tion to seeking more than $19 million in damages, DHX

requested an order requiring the defendants to stop commit-

ting these allegedly unreasonable practices and to more

openly embrace DHX’s competition. All parties filed lengthy

submissions before the STB with regard to DHX’s conten-

tions. On May 14, 2003, the STB issued a decision granting

Horizon’s motion for partial dismissal of the amended com-

plaint. The STB rejected DHX’s claim that any rate charged

to DHX was per se unreasonable if it was higher than the rate

charged to another customer. The Board explained:

DHX’s approach appears to be no more than a

broad-ranging allegation that all of defendants’ rates

are discriminatory. But the discrimination remedy

was repealed as to this trade in ICCTA. Thus, DHX

cannot possibly prevail in its argument that the

assailed rates are unreasonable even if it did show

that different shippers pay different rates for argu-

ably similar services.

While DHX’s complaint was pending before the STB,

DHX filed a civil complaint against Horizon in federal district

court in August 2002, asserting a claim for rate discrimina-

tion. In January 2003, the district court dismissed DHX’s

complaint for failure to state a claim, holding that there is no

“common law cause of action for rate discrimination against

an ocean carrier.” The district court further concluded that

because the STB has primary jurisdiction to determine the

lawfulness of a water carrier’s conduct, particularly with

regard to the reasonableness of its rates and practices, the only

10978 DHX, INC. v. STB

relief available to DHX was whatever relief might be avail-

able under the Interstate Commerce Act as determined by the

STB.

On December 15, 2004, the STB issued a decision denying

the remaining claims against Matson and Horizon raised in

DHX’s amended complaint. Despite the “lengthy” nature of

the amended complaint “with diffuse allegations ranging from

discrimination and improper tariff format to deceit and fraud,”

the Board explained that the “principal substantive issue that

remains to be resolved in this case is whether the actions that

defendants took to recapture traffic and profits that they had

lost to DHX constitute unreasonable practices.” The STB con-

cluded that DHX had not demonstrated that the water carriers

had engaged in unreasonable practices in violation of 49

U.S.C. § 13701(a)(1). Instead, the Board concluded that:

[I]t is not an unreasonable practice for a carrier to act

in a manner, as here, designed to protect its profits

and its market share from diversion to its competi-

tors, and the Board will not interfere with actions

that have not been shown to be anything more than

prudent responses to competitive threats.

In reaching its decision, the STB noted that the Matson and

Horizon had given DHX favorable treatment where it made

business sense to do so; that DHX “is itself the beneficiary of

many of the tariff provisions about which it complains”; and

“that DHX’s business [in the Hawaiian trade] has grown since

the original complaint was filed.” In addition, the STB stated

that the anti-discrimination provisions of the Interstate Com-

merce Act had been repealed for water carriers by the ICCTA,

and rejected DHX’s argument that a discrimination claim

could instead be based upon the general statement of transpor-

tation policy contained in 49 U.S.C. § 13101.

In a motion for reconsideration, DHX argued that either the

STB had erred in finding that there was no remedy under the

DHX, INC. v. STB 10979

Interstate Commerce Act for discriminatory pricing, or that

there had to be a remedy under common law for such a claim.

On June 13, 2005, the Board issued a decision denying

DHX’s petition, stating that there was no inconsistency

between its decision and the district court’s ruling concluding

there was no remedy under common law. The Board also

found no merit to DHX’s other claims of error, including its

assertions that certain of the water carriers’ tariffs were defi-

cient. This timely petition for review followed.

II

We review decisions by the STB under the Administrative

Procedure Act, 5 U.S.C. § 706(2). The agency’s decision

should be affirmed unless it is “arbitrary, capricious, an abuse

of discretion,” “otherwise not in accordance with law,” or

“unsupported by substantial evidence.” 5 U.S.C.

§§ 706(2)(A), (E). “Th[is] standard is a narrow one, and the

reviewing court may not substitute its judgment for that of the

agency.” Public Util. Dist. No. 1 v. FEMA, 371 F.3d 701, 706

(9th Cir. 2004) (citing Envtl. Def. Ctr., Inc. v. EPA, 344 F.3d

832, 858 n.36 (9th Cir. 2003)); see also In re Transcon Lines,

89 F.3d 559, 563-64 (9th Cir. 1996).

Where there is a challenge to the agency’s interpretation of

the statute that it administers, we apply the analytical frame-

work set forth in Chevron, U.S.A., Inc. v. Natural Resources

Defense Counsel, Inc., 467 U.S. 837, 842-45 (1984). See

Redmond-Issaquah R.R. Pres. Ass’n, 223 F.3d at 1061. “If the

intent of Congress is clear . . . [we] must give effect to the

unambiguously expressed intent of Congress.” Chevron, 467

U.S. at 842-43. If however, the meaning of the statute is

ambiguous, “the question for the court is whether the agen-

cy’s answer is based on a permissible construction of the stat-

ute.” Id. at 843. “[T]he court does not simply impose its own

construction on the statute. . . .” Id.

10980 DHX, INC. v. STB

III

[1] The core of DHX’s claims is that Matson and Horizon

unlawfully discriminated by not giving DHX identical rates to

those offered to direct FCL shippers such as Home Deport or

Sears. Contrary to DHX’s assertion, we conclude that Con-

gress did not intend to retain a private cause of action against

water carriers for discrimination when it enacted the ICCTA.

Prior to the ICCTA, joint rail/water and motor/water rates for

the noncontiguous domestic trade were subject to the rail and

motor anti-discrimination provisions in former 49 U.S.C.

§ 10741 (repealed 1995). Port-to-port rates were governed by

the anti-discrimination provisions of the Shipping Act of

1916, codified at former 46 U.S.C. app. § 815 (repealed

1995). When Congress enacted the ICCTA in 1995, it explic-

itly repealed the relevant Shipping Act provisions. See Pub. L.

No. 104-88, § 335(b)(4), 109 Stat. 953-54 (repealing former

46 U.S.C. app. § 815). Moreover, while Congress specifically

retained an anti-discrimination provision for rail carriers in 49

U.S.C. § 10741, it did not retain or add comparable provisions

for either water carriers or motor carriers. See ICCTA House

Report at 128, as reprinted in 1995 U.S.C.C.A.N. at 839-40

(containing a chart with the “disposition of existing provi-

sions” which shows the retention of the anti-discrimination

provision for rail carriers in 49 U.S.C. subtitle IV, part A, but

not retaining the comparable anti-discrimination provisions

for motor or water carriers in 49 U.S.C. subtitle IV, part B).

[2] Despite this legislative history, DHX contends that an

express statutory prohibition is not necessary to support its

discrimination claims. While a cause of action may be

inferred in some situations when a statute is silent, we decline

to infer one here where there was a prior explicit provision

that Congress knowingly removed. See Fox v. Citicorp Credit

Servs., Inc., 15 F.3d 1507, 1512-13 (9th Cir. 1994) (refusing

to assume that Congress acted contrary to its intentions when

it repealed a statutory provision and enacted no substitute);

see also Union Pac. R.R. Co. v. ICC, 867 F.2d 646, 649 (D.C.

DHX, INC. v. STB 10981

Cir. 1989) (holding that the agency could not use its authority

to address an unreasonable railroad practice in order to sub-

vert the statutory restriction against the agency examining the

reasonableness of a rail rate where the railroad does not have

“market dominance” over the transportation at issue).

[3] To support its position, DHX, in part, relies on language

in the ICCTA House Report stating that carriers would be

required to file tariffs in order to “ensure that similarly situ-

ated shippers are treated the same by carriers based on the

type and volume of cargo.” ICCTA House Report at 113.

However, this language cannot support such a claim since

Congress’s clear intent in ICCTA, as well as prior legislation,2

was to move away from a regime of strict rate equalization.

See id. Indeed, on the same page of the House Report, Con-

gress discusses its desire to ensure that “price watching” not

result in other carriers “follow[ing] the rates of the highest

priced carrier,” i.e., resulting in higher rates than would other-

wise be charged so that no shipper gets the benefit of dis-

counted rates. See id. Regardless, DHX cannot rely on general

report language to create a cause of action that is not provided

for in the ICCTA. See Fox, 15 F.3d at 1512-13 (“[I]solated

statements” within legislative history “cannot reintroduce

what the Congress has eliminated.”); United States v. Rone,

598 F.2d 564, 569 (9th Cir. 1979) (“The proper function of

legislative history is to solve, and not create, an ambiguity.”).

Moreover, even if we were to view ICCTA as ambiguous, the

2

See, e.g., Staggers Rail Act of 1980, Pub. L. No. 96-448, § 2, 94 Stat.

1895-96. Congress made it clear that the rail anti-discrimination provision

in the Staggers Act was not to be used to preserve a regulatory regime of

strict rate equalization. See H.R. Rep. No. 96-1430, at 104 (1980) (Conf.

Rep.), as reprinted in 1980 U.S.C.C.A.N. 4110, 4136 (“[C]laims of unjust

discrimination may not be used to hamper the development of sound eco-

nomic rate and service relationships.”); see also H.R. Rep. No. 96-1035,

at 59-60 (1980), as reprinted in 1980 U.S.C.C.A.N. 3978, 4004-05 (stating

that the anti-discrimination provision “is intended to recognize any differ-

ences that would normally be recognized in unregulated service industries

as constituting a basis for price differences” that are not anticompetitive.).

10982 DHX, INC. v. STB

STB’s conclusion that Congress repealed the prohibition

against discrimination by water carriers is entitled to defer-

ence under Chevron. Such a conclusion is also buttressed by

the Department of Transportation’s own interpretation of the

ICCTA. DOT Report at II-12 (stating that ICCTA “did not

specifically prohibit discriminatory rates [by water carriers],

as had the previous statute”).3

[4] Nor is there any other basis, statutory or otherwise, on

which to sustain DHX’s claim of alleged discrimination. As

it did before the STB, DHX argues that it may bring an action

against Matson and Horizon for discriminatory rates and prac-

tices based on the general policy objectives set forth in 49

U.S.C. § 13101. Specifically, DHX cites to the language in

subsection (a)(1)(D) which speaks of “reasonable rates . . .

without unreasonable discrimination” and language in subsec-

tion (a)(4) that encourages “service and price competition in

the noncontiguous domestic trade.”4 As the STB stated at the

outset of its December 2004 analysis, the Transportation Pol-

icy articulated at 49 U.S.C. § 13101(a) “simply sets forth a

variety of (sometimes conflicting) policy objectives for the

agency to consider in regulating the industry.” See, e.g., Balt.

Gas & Elec. Co. v. United States, 817 F.2d 108, 112, 115

(D.C. Cir. 1987) (addressing various rail transportation poli-

cies); Global Van Lines, Inc. v. ICC, 714 F.2d 1290, 1295-96

(5th Cir. 1983) (stating that the Transportation Policy is for

general guidance and is not an independent source of rule-

making power in motor carrier cases); accord Central For-

warding, Inc. v. ICC, 698 F.2d 1266, 1283-84 (5th Cir. 1983).

The STB correctly concluded that “a claim under the general

3

We do not address DHX’s argument for a discrimination-based cause

of action on the basis of pre-ICCTA case law because Congress’s repeal

of the prohibition of discrimination by water carriers renders those prece-

dents inconsistent with the current statutory provisions.

4

While subsection (a)(4) was added in the ICCTA and is addressed spe-

cifically to water carriers, subsection (a)(1)(D) is not specific to water car-

riers, and was carried over from the Transportation Act of 1940, Pub. L.

No. 76-785, 54 Stat. 898-99.

DHX, INC. v. STB 10983

Transportation Policy alone does not provide a right of action.”5

See also Trailer Bridge, Inc. v. Sea Star Lines, LLC, STB

Docket No. WCC-104, slip op. at 3 (STB served Dec. 10,

1999).

[5] DHX’s suggestion that 49 U.S.C. § 14101(a), which

sets forth the common carrier obligation, supports a cause of

action for discrimination is similarly unavailing. Section

14101(a) simply directs all common carriers to handle the

traffic that is tendered to them. See Decatur County Comm’rs

v. STB, 308 F.3d 710, 715 (7th Cir. 2002) (“The statutory

common carrier obligation imposes a duty upon [carriers] to

‘provide transportation . . . on reasonable request.’ ”). It does

not say that they must charge every shipper the exact same

rates. Indeed, providing different customers with different

rates and services is not inconsistent with a water carrier’s

common carrier duty to provide service to each customer

upon reasonable request, if the rates charged are reasonable.

See, e.g., Am. Trucking Ass’ns, Inc. v. Atchison, Topeka &

Santa Fe Ry., 387 U.S. 397, 406 (1967) (discussing common

carrier obligations and stating “[r]ates were required to be rea-

sonable, but discrimination in the form of unequal rates as

among shippers was not forbidden” at common law).

[6] The STB’s May 14, 2003, holding that “DHX cannot

possibly prevail in its argument that the assailed rates are

unreasonable even if it did show that different shippers pay

different rates for arguably similar services” because “the dis-

crimination remedy was repealed as to this trade in the

5

Moreover, as respondents point out, the language in section 13101 does

not necessarily support DHX’s argument. “Service and price competition

in the noncontiguous domestic trade,” for example, is entirely compatible

with — and indeed may require — a degree of price discrimination.

§ 1301(a)(4). Similarly, some of the policies articulated in subsection

(a)(1) — such as “sound economic conditions among carriers” and “fair

wages . . . in the transportation industry” — suggest that Horizon and Mat-

son should be allowed to take all reasonable measures to maximize their

profits.

10984 DHX, INC. v. STB

ICCTA” is not arbitrary, capricious, or an abuse of its discre-

tion. Rather, it is supported by substantial evidence and is in

accordance with law as expressed in ICCTA and congressio-

nal intent.

IV

[7] Congress’s removal of any anti-discrimination provi-

sions applicable to the water trade through its enactment of

the ICCTA does not, however, mean that the STB is without

authority to review for antitrust considerations as part of its

statutory responsibilities. To the contrary, if the STB believed

that the oligopolist shippers’ pricing was aimed at eliminating

competition in a manner harmful to consumers, the STB is

empowered to step in and regulate any such anticompetitive

behavior as part of its statutory responsibilities. See generally

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 US.

585 (1985) (recognizing that under certain circumstances a

refusal to cooperate with rivals can constitute anticompetitive

conduct, thereby violating section 2 of the Sherman Act); see

also MetroNet Servs. Corp. v. Qwest Corp., 383 F.3d 1124,

1132 (9th Cir. 2004) (“An offer to deal with a competitor only

on unreasonable terms and conditions can amount to a practi-

cal refusal to deal.”).

[8] Here however, the conduct DHX complains of does not

appear to have been prompted by “anticompetitive malice,”

but rather “competitive zeal.” See Verizon Commc’ns Inc. v.

Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 409

(2004). Indeed, Matson and Horizon have not engaged in

price discrimination because the rates they charge freight for-

warders like DHX do not result in pricing which is “at an

unprofitable level in the short run merely to exclude competi-

tion in the long run.” MetroNet, 383 F.3d at 1133. We do not,

however, address this issue further because DHX did not raise

any specific antitrust claims below. Instead, we simply note

that the STB possesses ample statutory authority to address

and remedy any oligopolist pricing concerns arising out of the

DHX, INC. v. STB 10985

water carriers’ conduct under traditional antitrust principles.

Cf. 49 U.S.C. §§ 10706(a)(2)(A), 11321(a), 11324; James F.

Rill, The Evolution of Modern Antitrust Among Federal Agen-

cies, 11 Geo. Mason L. Rev. 135, 142 (2002) (noting that the

STB, while not one of the “primary federal antitrust review

agencies,” “ha[s] jurisdiction over [a] particular sector[ ]”).

V

[9] It was also not arbitrary, capricious, an abuse of discre-

tion or contrary to law for the STB to conclude that DHX had

not shown that it was subjected to unreasonable rates or prac-

tices. DHX has mistakenly equated discriminatory pricing

with unreasonableness. Rates can be discriminatory without

being unreasonable, or unreasonable without being discrimi-

natory. Reasonableness denotes a range, rather than a single

fixed point. See Montana-Dakota Utils. Co. v. Nw. Pub. Serv.

Co., 341 U.S. 246, 251 (1951); accord FPC v. Conway Corp.,

426 U.S. 271, 278 (1976) (addressing price squeeze and find-

ing that a reasonable rate can be discriminatory); ICC v.

Inland Waterways Corp., 319 U.S. 671, 685 (1943). As

respondents argue, “DHX’s theory would turn all rate dis-

crimination automatically into unreasonable rates, and upset

the longstanding distinctions.” See, e.g., Davis v. Portland

Seed Co., 264 U.S. 403, 424-25 (1924) (holding that a shipper

claiming discrimination was not entitled to reparations based

on the difference between the rate it was charged and the

lower rate given to someone else, unless it could show conse-

quential damages, i.e., lost sales); see also Pennsylvania R.R.

v. Int’l Coal Mining Co., 230 U.S. 184, 199-201 (1913).

DHX contends that the rates it was charged by Horizon and

Matson were unreasonable and that it is entitled to damages

whenever the rates it was charged were higher than the rates

paid by another shipper. DHX claims that such a calculation

constitutes “the traditional method of determining rate reason-

ableness and calculation of damages,” and that because the

STB has not replaced this traditional method with any other

10986 DHX, INC. v. STB

rate reasonableness standards, this method along with the per-

tinent case law continues to apply. These rate reasonableness

standards, however, are from the 1930s, prior to Congress’s

significant shift toward deregulation. See, e.g., United States

v. N. Pac. Ry. Co., 288 U.S. 490, 500 (1933) (stating that rate

comparisons can be used as one test of rate reasonableness,

but cautioning that such a test should not be controlling). As

respondents persuasively argue and the history of deregula-

tion since then demonstrates, the notion that Congress has

retained an outdated, 1930s approach to rate regulation — an

approach it has labeled as “Kafkaesque,” see ICCTA House

Report at 91 — is without merit, as is the idea that the agency

has not modernized its rate criteria since the 1930s.

[10] The bulk of the case law relied upon by DHX pertains

to railroad rates from decades earlier. Since those decisions,

the ICC and now the STB have developed a Constrained Mar-

ket Pricing (“CMP”) approach for assessing whether rail rates

are reasonable. See Coal Rate Guidelines, Nationwide, 1

I.C.C. 2d 520 (1985). Under CMP, the agency’s goal is to

determine how much a carrier would need to charge the

aggrieved shipper for its service after removing any costs

associated with inefficiencies and removing cross-subsidies

between different shippers. Under either of the approaches

used under CMP to make this determination, the STB does

not compare the challenged rate to rates charged to other ship-

pers, because railroads are expected to engage in “differential

pricing” by charging different rates to different shippers. See

Coal Rate Guidelines, 1 I.C.C.2d at 526-27.6 The Federal

Maritime Commission has used a public utility-type approach

in rate cases that assesses the carriers’ total revenues to deter-

6

The STB has also devised “Simplified Guidelines” that it uses in rail

rate cases for which the CMP approach is not practicable. See Rate Guide-

lines — Non-Coal Proceedings, 1 S.T.B. 1004, 1020 (1996). Under these

simplified guidelines, the STB does not directly look at the rates charged

to other shippers, but instead looks at rate markups over costs as well as

the carrier’s overall revenue needs in order to determine reasonableness.

This method also differs from the approach advocated by DHX.

DHX, INC. v. STB 10987

mine whether the carrier is earning enough overall. See Gov’t

of the Territory of Guam v. Sea-Land Serv., Inc., STB Docket

No. WCC-101, at 2 (STB served Nov. 15, 2001), 2001 WL

1436500 (S.T.B.).

When Congress transferred regulation of water carriers

engaged in the noncontiguous domestic trade to the STB with

the 1995 enactment of the ICCTA, it did not specify whether

the STB should apply the CMP approach to water carriers,

follow the approach that had been used by the Federal Mari-

time Commission, or adopt some other approach for assessing

the reasonableness of water carrier rates. The STB has

advised us that it is currently examining the issue of which

rate reasonableness analysis to employ with respect to water

carriers in the ongoing proceedings in Gov’t of the Territory

of Guam v. Sea-Land Serv., Inc., but neither of those parties

has, like DHX, “suggested that Congress intended for the

Board to revive outdated policies from the 1930s that Con-

gress has itself criticized.”

[11] To buttress its argument, DHX points to the ICC’s use

of a rate comparison approach to assess maximum rate rea-

sonableness in motor carrier cases as late as the 1990s. The

STB, in its May 2003 decision explained why these cases and

the market cluster analysis they used were not applicable to

the noncontiguous domestic water trade:

DHX states . . . [in its] amended complaint . . . that

it intends to pursue its unreasonable rate claims

based on the type of market cluster analysis set forth

in Georgia-Pacific [Georgia-Pac. Corp.—Petition

for Declaratory Order—Certain Rates & Practices

of Oneida Motor Freight, Inc., 9 I.C.C. 2d 103

(1992)]. However, the Georgia-Pacific standard was

developed solely to determine the reasonableness of

motor carrier rates for past shipments by defunct car-

riers by looking at the rates of several other carriers

in the market. Here, DHX wants to compare rates

10988 DHX, INC. v. STB

that one shipper pays to a carrier with those paid by

another shipper to the same carrier. Thus, even if

Georgia-Pacific were applicable in the noncontigu-

ous domestic trade, DHX’s approach appears to be

no more than a broad-ranging allegation that all of

defendants’ rates are discriminatory. But the dis-

crimination remedy was repealed as to this trade in

ICCTA. Thus, DHX cannot possibly prevail in its

argument that the assailed rates are unreasonable

even if it did show that different shippers pay differ-

ent rates for arguably similar services.

Moreover, as the STB explained, “in the Georgia-Pacific pro-

ceeding, the Caribbean Shippers Association, Inc. (CSA),

expressed concern that the cluster approach should not be

used to determine the reasonableness of joint motor-water

rates filed by steamship lines in the domestic offshore trade

because the water portion of this trade is not highly competi-

tive.” In response to the CSA’s concerns the ICC stated that

“the market-rate comparison approach was not an all-purpose

measure of rate reasonableness and clearly was not intended

for use in a market that is not effectively competitive.” See

Georgia-Pacific, 9 I.C.C. 2d at 806, 828. DHX’s argument

that the Georgia-Pacific market cluster analysis should be

used to determine rate reasonableness in this case is incorrect

under current case law.

[12] DHX also contends that Matson and Horizon commit-

ted unreasonable practices by (1) targeting discounts to partic-

ular shippers, (2) following each other’s actions, and (3)

publishing incomplete or improper tariffs. The STB however,

properly concluded that DHX’s remaining unreasonable prac-

tice claims lacked merit, because it held that the actions taken

by Matson and Horizon were reasonable and prudent business

practices in dealing with a freight forwarder that is both a cus-

tomer and a competitor. As the STB stated in its December

2004 decision, “it is not a unreasonable practice for a carrier

to act in a manner, as here, designed to protect its profits and

DHX, INC. v. STB 10989

its market share from diversion to its competitors, and the

Board will not interfere with actions that have not been shown

to be anything more than prudent responses to competitive

threats.”

[13] DHX contends that it was unreasonable for Matson

and Horizon to restrict certain discounts to their direct ship-

pers by offering targeted discount rates. But that conclusion

is not compelled by the record. DHX is itself a beneficiary of

certain targeted discount rates from both water carriers

because each one is attempting to capture traffic and lure

away freight forwarder business from the other through such

discounted rates. Moreover, adopting DHX’s position would

be inconsistent with the history and purposes behind the

enactment of the ICCTA and the trend toward deregulation

which it represents. To preclude price discrimination on ship-

ping rates might deter shippers from reducing rates in

attempts to get new customers or to keep old ones, and such

a ban on discriminatory rates would be harmful to competi-

tion and contrary to the interests of consumers. To assess such

impacts requires a discriminating judgment on the industry’s

practices and economics. Congress has entrusted that respon-

sibility to the STB in the first instance, and our review of the

responsible agency’s action is necessarily limited to assessing

whether the agency has acted in a manner that is arbitrary,

capricious, an abuse of discretion, not supported by substan-

tial evidence, or contrary to law.

Moreover, as the STB explained in its December 2004

decision, even “when motor carriers were more heavily regu-

lated the ICC explicitly rejected claims that trucking tariffs

containing rates applicable only to named shippers and receiv-

ers or to specific addresses [i.e. the same type of rates DHX

complains of] were unlawfully discriminatory.” If such carrier

practices were explicitly found to be lawful during the period

of heavier regulation proceeding the enactment of ICCTA, we

need not conclude that such practices are unlawful in the cur-

rent, less restrictive regulatory climate.

10990 DHX, INC. v. STB

[14] DHX next contends that Horizon and Matson engaged

in improper, anticompetitive behavior by watching and mir-

roring each other’s actions. All businesses, however, monitor

their competitors’ pricing to see whether and how they should

match or beat the discounts they are offering. Moreover, price

watching is inherent in a tariff system that statutorily requires

carriers to publish their common carrier rates. DHX itself

monitors Matson and Horizon’s tariffs to compete with them

and manipulate the water carriers’ tariffs to its own advan-

tage. As DHX acknowledges, the water carriers have used

such competitive information to reduce their rates in order to

match or undercut each other’s prices. Under such circum-

stances DHX has made no showing of anticompetitive con-

duct.

[15] Finally, DHX argues “that even if the discounted rates

to large-volume direct shippers were not otherwise unlawful,

the manner in which they were reflected in the water carriers’

tariffs made them improper” by containing discounted rates

that are limited to a certain shipper location or zip code, for

example. However, in Rates For a Named Shipper or

Receiver, 367 I.C.C. 959 (1984), the STB’s predecessor

allowed motor carriers to express rates in that precise manner

in their tariffs. This policy was cited by Congress with

approval in the ICCTA House Report. See ICCTA House

Report at 91-92, as reprinted in 1995 U.S.C.C.A.N. at 803-04

(“The Motor Carrier Act encouraged a more competitive envi-

ronment and led the ICC to change tariff filing regulations to

permit tariff rate reductions and to allow carriers to establish

rates for named shippers.”). We reject DHX’s other argu-

ments regarding the water carriers’ tariffs, concluding that

they were properly rejected by the STB.

We also reject DHX’s suggestion that an additional hearing

is needed before the STB to address all of its claims. The

record, developed over the course of five years, contains

extensive written evidence and argument submitted by both

parties, as demonstrated by the 2700-page, 9-volume excerpts

DHX, INC. v. STB 10991

of record. We have previously held that the STB’s standard

procedures provide due process, see Lodi Truck Serv., Inc. v.

United States, 706 F.2d 898, 901 & n.5 (9th Cir. 1983), and

DHX has not shown that the STB failed to provide due pro-

cess here. See also Amador Stage Lines, Inc. v. United States,

685 F.2d 333, 335 (9th Cir. 1982).

VI

[16] For the above reasons this challenge to the STB’s deci-

sions on rates of water carriers is not within the narrow cate-

gory of cases in which we are empowered to override the

agency’s knowledgeable exercise of its authority over the rea-

sonableness of rates and related practices in a regulated indus-

try. We hold that the STB’s decisions denying DHX’s

complaint challenging the reasonableness of certain rates and

practices of Matson and Horizon were not arbitrary, capri-

cious, an abuse of discretion, or unsupported by substantial

evidence. We also conclude that the STB’s decisions are in

accordance with law.

PETITION FOR REVIEW DENIED.