Petition for Writ of Certiorari — General American Transportation Corp. v. Interstate Commerce Commission

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| OCT 27 1989

SEPH F. SP.

es coe

Supreme Court of the United S

OCTOBER TERM, 1989

GENERAL AMERICAN TRANSPORTATION CORPORATION, ef al,.

Petitioners,

INTERSTATE COMMERCE COMMISSION and

UNITED STATES OF AMERICA,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

DAVID F. ZOLL

E. THOMAS SMERDON, JR.

CHEMICAL MANUFACTURERS

ASSOCIATION

2501 M Street, N.W.

Washington, D.C. 20037

(202) 887-1158

JOHN L. OBERDORFER

Scott N. STONE

PATTON, Boccs & BLOW

2550 M Street, N.W.

Washington, D.C, 20037

(202) 457-6000

Counsel for Petitioner Chemical

Manufacturers Association

HENRY M. WICK, JR.

WICK, RICH, FLUKE & STREIFF

1610 Two Chatham Center

Pittsburgh, PA 15219

(412) 765-1600

Counsel for Petitioner U.S. Clay

Producers Traffic Association,

Ine.

* Counsel of Record

PATRICK M. RAHER *

ELISA C. MASSIMINO

HOGAN & HARTSON

555 Thirteenth Street, N.W.

Washington, D.C. 20004

(202) 637-5682

THOMAS F. MCFARLAND, JR.

BELNAP, SPENCER, MCFARLAND,

EMRICH & HERMAN

20 North Wacker Drive

Chicago, Lilinois 60606

(212) 236-0204

Counsel for Petitioners General

American Trans rtation

Corporation, General Electric

Railear Services Corporation,

Union Tank Car Company,

anal Railway Progress

Institute Committee on

Tank Cars

PETER A. GREENE

R. HALE FOOTE

THOMPSON, HINE & FLORY

1920 N Street, N.W.

Suite 700

Washington, D.C. 20036

(202) 331-8800

Counsel for Petitioner

MBF Industries, Inc.

{ Additional Counsel Listed on Inside Cover ]

WILSON - EPEsS PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001 /

HAROLD E. SPENCER

BELNAP, SPENCER, MCFARLAND

EMRICH & HERMAN

20 North Wacker Drive

Chicago, Illinois 60606

(312) 236-0204

Counsel for LO Shippers Action

Committee

QUESTIONS PRESENTED

In 1987, the Interstate Commerce Commission (‘“ICC”

or “Commission”) reversed its 40-year-old policy regard-

ing the movement of empty rail cars for repair. The

Commission concluded, for the first time, that rail car-

riers could charge separately for these moves. The Com-

mission’s conclusion undermines a central tenet of rail

regulation—that rail carriers are responsible for provid-

ing suitable rail cars for transportation—and confiicts

with decisions from the Seventh Circuit construing the

Interstate Commerce Act. The Commission reached its

decision after extensive comment by members of the in-

dustry, comments the Commission requested pursuant to

the rule making procedures of the Administrative Pro-

cedure Act. Despite the well-established doctrine that

agency rule making applies prospectively only, the Com-

mission proceeded to apply this new rule retroactively to

the petitioners in the case below. The questions presented

are:

1. May the lower court require a showing of congres-

sional awareness and express congressional approval

before it recognizes the significance of Congress’

failure to disturb the ICC’s longstanding rule on -

empty repair moves, despite this Court’s opinions

stating that proof ef congressional awareness or

approval is not required?

2. Which interpretation of the Interstate Commerce

Act is correct: the interpretation approved by the

court below which upheld the ICC’s new empty

repair move policy, or the interpretation of the

Seventh Circuit which held that separate charges

for empty repair moves violated the Act?

3. May the lower court allow the Interstate Commerce

Commission to alter the historic common carrier

obligations of railroads to bear the cost of furnish-

(i)

—_

ing the cars in which they transport property when

Congress has not indicated an intent to alter these

obligations?

4. May the lower court permit the ICC to apply its

new rule on empty repair moves retroactively?

LIST OF PARTIES

Petitioners in consolidated case Nos. 87-1125, 87-1171

and 88-1284 include Railway Progress Institute Commit-

tee on Tank Cars, General American Transportation Cor-

poration, General Electric Railear Services Corporation,

and Union Tank Car Company.

Intervenors in support of petitioners in these consoli-

dated cases include the Chemical Manufacturers Associa-

tion, LO Shippers Action Committee, MFB Industries,

Inc., and U.S. Clay Producers Traffic Association, Inc.

Respondents in these consolidated cases include the In-

terstate Commerce Commission and the United States of

America.

Intervenors in support of respondents in these consoli-

dated cases include the Association of American Rail-

roads, the Baltimore and Ohio Chicago Terminal Railroad

Company, and Indiana Harbor Belt Railroad Company.

TABLE OF CONTENTS

Page

(8 RN), ny Ee vi

TN 1

i a atigthasinnenntibananantnnnnncnenane 2

~ PERTINENT STATUTORY PROVISIONS ............... 2

STATEMENT OF THE CASE .................................... 5

REASONS FOR GRANTING THE WRIT .................. 9

I. The Court Below Erred In Dismissing The Sig-

nificance Of Congress’ Failure To Disturb The

ICC's Lengstanding Bulle .........................10.......... ll

II. The Decision Below Conflicts With Decisions

From The Seventh Circuit ................................... 16

III. The ICC’s New Rule Undermines A Central

Tenet Of Rail Regulation That Congress Has

eal sina aiiaais dialtnaineiieednbdimaendeatetonane 18

IV. The Court Below Erred In Permitting The

Agency To Apply Its Reversal Of Policy Retro-

a a rr 21

SUES ccssnensetsnneceseerenereensamnreenssereneaneensenssnnnqenasannee 26

(iii)

= TABLE OF AUTHORITIES

Cases: Page

AFL-CIO Vv. Brock, 835 F.2d 912 (D.C. Cir. 1987) .. 13

American Ship Building Co. v. NLRB, 380 U.S.

ier aiic dallas chetinteaintcnrrsenncneetidetemmesitieinnhteitadatediain

American Trucking Ass’ns, Inc. v. ICC, 722 F.2d

ee I iicstenicortiteianenncenscsstianenteninonings 14

Association of Nat’l Advertisers v. FCC, 627 F.2d

1151 (D.C. Cir. 1979), cert. denied, 447 U.S. 921

EREETIITE « sscintsaschjncsssinbisiisehiepieadbbbediacidemeanicahitiaadenstiddiibeihvitadacelils 22

Atchison, T. & S.F. Ry. Co. v. Union Tank Car

Co., 611 F.2d 1184 (7th Cir. 1979) ...................... passim

Bob Jones Univ. v. United States, 461 U.S. 574

DURE’. scibtstasstcaslstoct ceedesdendelt sie neadalnecoan asienaankadsenaninnndmabers 14

Bowen Vv. Georgetown Univ. Hosp., 109 S.Ct. 468

2 RRS nea eaneNoe RRC MOND ay ts. eee RN AIO passim

Bureau of Alcohol, Tobacco & Firearms v. FLRA,

Ge Se I cttcteessietrtridcinteenitciatiicaertianns 20

Cannon V. University of Chicago, 441 U.S. 677

I astincsiathbeleteilli scien sotedtedh anallbashibaaniinahtidainietdndin 13

Coal Exporters Ass’n of the United States, Ine. Vv.

United States, 745 F.2d 76 (D.C. Cir. 1984) ...... ll

Commodity Futures Trading Comm’n V. Schor, 478

en ee ctieasainiheabbbens 10, 13

Costanzo V. Tillinghast, 287 U.S. 341 (19382)........ 14

Demarest Vv. Manspeaker, 1989 U.S. App. LEXIS

13193 (10th Cir. Sept. 5, 1989) 0.0... 15

Evans Prods. Co. v. ICC, 729 F.2d 1107 (7th Cir.

PUNT, - Geinsinedaricnsancicssssnslenchscshisbeedtphiebehapenipalaaadtia aadaiueaatiitenil passim

Fmali Herb, Inc. v. Heckler, 715 F.2d 1385 (9th

SRE EF Reiter error ne ete ee ENR Oa 15

FMC Wyoming Corp. Vv. Hodel, 816 F.2d 496 (10th

Cir. 1987), cert. denied, 108 S. Ct. 772 (1988)... 15

Ford Motor Co. v. FTC, 673 F.2d 1008 (9th Cir.

1981), cert. denied, 459 U.S. 999 (1982) —.......... 24

General Am. Transp. Corp. Vv. Indiana Harbor Belt

pF ee Me fll eS), ) Enemas passim

Haig Vv. Agee, 453 U.S. 280 (1981)... 14 |

Horner V. Jeffrey, 823 F.2d 1521 (Fed. Cir. 1987) .. 14

Indiana Harbor Belt R.R. Co. v. General Am. |

Transp. Co., 577 F.2d 394 (7th Cir. 1978)........passim |

satel

TABLE OF AUTHORITIES—Continued

Page

In re Dept. of Energy Stripper Well Exemption

Litig., 690 F.2d 1875 (Temp. Emer. Ct. App.

1982), cert. denied, 459 U.S. 1127 (1983) .......... 15

Lorillard v. Pons, 434 U.S. 575 (1978) .................. 18, 14

Mayburg Vv. Secretary of HHS, 740 F.2d 100 (1st

ETIID, , TITIIIIED, ’ssc:sirsessacindiimntitbianidbiadindaneheidicniiastadaiihiiaadiniasitamaliniaine 14

Merrill Lynch, Pierce, Fenner & Smith v. Curan,

BD Fe ee 14

NLRB v. Bell Aerospace Co., 416 U.S. 267 (1974)... 10, 13

North Haven Bd. of Educ. v. Bell, 456 U.S. 512

CIID Siiiciceidncacbhesantisicdinesiisiissspenihontapisiliaishesmmasialdaaiadiisenntsecs 14

Norwegian Nitrogen Co. v. United States, 288 U.S.

RR eee ee ane 14

Nueces County Navigation Dist. No. 1 v. FCC, 674

F.2d 1055 (5th Cir.), cert. denied, 459 U.S. 1035

CURIE ‘sesseuprehichdenichiinbdiencltinnstitetiaetiinctlatseineianataddliaaimbaiiadaicictasit 25

Osborn Vv. American Ass’n of Retired Persons, 660

~ & Ff le S& | SRR eee 15

Patel v. INS, 638 F.2d 1199 (9th Cir. 1980) ~........ 24

SEC v. Chenery Corp., 332 U.S. 194 (1947) -........ 22

Sierra Club v. Hodel, 848 F.2d 1068 (10th Cir.

SITTIN snecccesndacbnsinieiasiessmbeieaeianmeininelinauangilin uaadislaicitins 15

Udall v. Tallman, 380 U.S. 1 (1965) —.....-0000000...... 14

Union Tank Car Co., 268 I.C.C. 338 (1947) ........... 6, 11

United States v. Rutherford, 442 U.S. 544 (1979).. 14

UPS v. Mitchell, 451 U.S. 56 (1981) .........0..00000....... 23

Ward v. Commissioner, 784 F.2d 1424 (9th Cir.

ea da ee ai aieeiecate ieee 13

Young v. Community Nutrition Inst., 476 U.S. 974

OT a i ee 14

Zemel V. Rusk, 381 U.S. 1 (1965) ......00-0....e eee. 14

Statutes and Regulations:

Administrative Procedure Act, 5 U.S.C. § 551_...... 2

Administrative Procedure Act, 5 U.S.C. § 553._...... 2

Interstate Commerce Act, 49 U.S.C. § 10102... 3,17

Interstate Commerce Act, 49 U.S.C. § 10728......4, 11, 17

Interstate Commerce Act, 49 U.S.C. § 10761........ 4

TABLE OF AUTHORITIES—Continued

Page

Interstate Commerce Act, 49 U.S.C. § 11122........ 5, 19

Railroad Revitalization and Regulatory Reform

Act, Pub. L. No. 94-210, 90 Stat. 31 (1976)... 8

Staggers Act, Pub. L. No. 96-448, 94 Stat. 1895

| EE eet rn OE ALI 8, 11

BD es Oe See C0 eens ie . 2

Other Authority:

Attorney General’s Manual on the Administrative

oD eee 10, 29

I IE DY scccisisitenashassanseibotnincanantinel eB SN 23

I ee iincniienichintniincctentetiinnsnihiianeimeee ais 23

IN THE

Supreme Court of the United States

OCTOBER TERM, 1989

No. 89-————

GENERAL AMERICAN TRANSPORTATION CORPORATION, et ai,.

- Petitioners,

INTERSTATE COMMERCE COMMISSION and

UNITED STATES OF AMERICA,

Respondents.

PEITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Petitioners General American Transportation Corpora-

tion, General Electric Railear Services Corporation, Rail- |

way Progress Institute Committee on Tank Cars, Union

Tank Car Company, Chemical Manufacturers Associa- |

tion, MBF Industries, Inc., LO Shippers Action Commit- |

tee, and U.S. Clay Producers Traffic Association, Inc.

respectfully pray that a writ of certiorari issue to review

the judgment and opinion of the United States Court of

Appeals for the District of Columbia Circuit entered in

the above-entitled proceedings on April 14, 1989.

OPINIONS BELOW

The opinion of the Court of Appeals is reported at

872 F.2d 1048 and is reprinted in the appendix hereto

(“App.”) at la. The opinion on rehearing is reported at

883 F.2d 1029 and is reprinted at App. 30a.

The decision of the Interstate Commerce Commission

reversing its no-charge-for-empty-repair-moves policy is

reported at 3 I.C.C.2d 599 and is reprinted at App. 37a.

The decision of the Interstate Commerce Commission

denying the petition for reopening and reconsideration

is not reported and is reprinted at App. 69a.

JURISDICTION

The judgment of the Court of Appeals was entered on

April 14, 1989, App. la, and a timely petition for rehear-

ing and suggestion of rehearing en bane was denied on

June 30, 1989. App. 30a. On September 13, 1989, the

Chief Justice extended the time within which to petition

for certiorari to and including October 28, 1989. App.

10la. The jurisdiction of this Court is invoked under 28

U.S.C. § 1254(1).

PERTINENT STATUTORY PROVISIONS

The following provisions of the Administrative Pro-

cedure Act are at issue:

5 U.S.C. § 551. Definitions.

For the purposes of this subchapter— oa:

(4) “rule” means the whole or a part of an agency

statement of general or particular applicability and

future effect designed to implement, interpret, or

prescribe law or policy or describing the organiza-

tion, procedure, or practice requirements of an

agency and includes the approval or prescription for

the future of rates, wages, corporate or financial

structures or reorganizations thereof, prices, facili-

ties, appliances, services or allowances therefor or of

valuations, costs, or accounting, or practices bearing

on any of the foregoing;

(5) “rule making” means agency process for for-

mulating, amending, or repealing a rule;

(7) “adjudication” means agency process for the

formulation of an order * * *.

5 U.S.C. § 553. Rule making

(b) General notice of proposed rule making shall be

published in the Federal Register, unless persons sub-

ject thereto are named and either personally served

or otherwise have actual notice thereof in accordance

with law. The notice shall include—

(1) a statement of the time, place, and nature

of public rule making proceedings ;

(2) reference to the legal authority under

which the rule is proposed; and

(3) either the terms or substance of the pro-

posed rule or a description of the suljects and

issues involved.

Except when notice or hearing is required by stat-

ute, this subsection does not apply—

(A) to interpretative rules, general statements

of policy, or rules of agency organization, pro-

cedure, or practice; or

(B) when the agency for good cause finds (and

incorporates the finding and a brief statement

of reasons therefor in the rules issued) that

notice and public procedure thereon are imprac-

ticable, unnecessary, or contrary to the public

interest.

shall give interested persons an opportunity to par-

ticipate in the rule making through submission of

written data, views, or arguments with or without

opportunity for oral presentation. After considera-

tion of the relevant matter presented, the agency

shall incorporate in the rules adopted a concise gen-

eral statement of their basis and purpose. * * °.

The following provisions of the Interstate Commerce

Act, as amended, are at issue:

49 U.S.C. § 10102. Definitions.

In this subtitle—

(26) “transportation” includes

(A) a locomotive, car, vehicle, motor vehicle, vessel,

warehouse, wharf, pier, dock, yard, property, facil-

ity, instrumentality, or equipment of any kind re-

lated to the movement of passengers or property, or

both, regardless of ownership or an agreement con-

cerning use; and

(B) services related to that movement, including re-

ceipt, delivery, elevation, transfer in transit, refrig-

eration, icing, ventilation, storage, handling, and in-

terchange of passengers and property.

49 U.S.C. § 10728. Separate rates for distinct rail

services.

(a) A rail carrier providing transportation subject

to the jurisdiction of the Interstate Commerce Com-

mission under subchapter I of Chapter 105 of this

title may, on its own initiative or at the request of

a shipper or receiver of property, establish separate

rates for distinct rail services to—

(1) encourage competition;

(2) promote increased reinvestment by rail car-

riers; and

(3) encourage and make easier increased non-

railroad investment in the production of rail services.

(b) The Commission shall maintain expeditious pro-

cedures to permit separate rates for distinct rail

services to—

(1) encourage those services to be priced in ac-

cordance with the cash-outlay incurred by the car-

rier and the demand for them; and

(2) enable shippers and receivers to evaluate

transportation and related rates and alternatives.

49 U.S.C. § 10761. Transportation prohibited without

tariff.

Except as provided in this subtitle, a carrier provid-

ing transportation or service subject to the juris-

diction of the Interstate Commerce Commission un-

der chapter 105 of this title shall provide that trans-

portation or service only if the rate for the transpor-

tation or service is contained in a tariff that is in

effect under this subchapter. * * *.

49 U.S.C. § 11122. Compensation and practice.

(a) The regulations of the Interstate Commerce

Commission on car service shall encourage the pur-

chase, acquisition, and efficient use of freight cars.

The regulations may include—

(1) the compensation to be paid for the use of a

locomotive, freight car, or other vehicle;

(2) the other terms of any arrangement for the

use by a rail carrier of a locomotive, freight

ear, or other vehicle not owned by the rail car-

rier using the locomotive, freight car, or other

vehicle, whether or not owned by another car-

rier, shipper, or third person; and

(3) sanctions for nonobservance.

(b) The rate of compensation to be paid for each

type of freight car shall be determined by the ex-

pense of owning and maintaining that type of

freight car, including a fair return on its cost giv-

ing consideration to current costs of capital, repairs,

materials, parts, and labor. In determining the rate

of compensation, the Commission shall consider the

transportation use of each type of freight car, the

national level of ownership of each type of freight

ear, and other factors that affect the adequacy of

the national freight car supply.

STATEMENT OF THE CASE

The agency rule at issue in this case concerns whether

railroads can charge the owners of private railcars for

the costs of transporting their empty cars to and from

repair facilities for maintenance. It is undisputed that

part of the obligation of railroads as common carriers is

to provide railcars suitable for the transportation of a

broad range of products. App. 4a. When the railroads

are incapable of providing suitable equipment or refuse

to invest in necessary equipment—such as tank cars—

they are required to compensate shippers who do provide

it. As the court below recognized, it is a given that the

“Tr]ailroads are not permitted to charge the railcar own-

ers or car providers separately to return an empty car

to the point of origination.” Jd. Instead, such empty

moves have been regarded as a necessary part of the |

railroads’ use of the cars to fulfill their common-carrier

obligations, and thus the cost for them can only be re-

covered by the railroads in freight rates for commodities

loaded and transported in such cars. Id.

Until the ICC action challenged here, empty movements

of the private cars to and from repair facilities for ordi-

nary maintenance were historically treated in the same

manner as other empty movements. See Union Tank

Car Co., 268 I.C.C. 338 (1947). This rule was challenged

in a 1977 proceeding involving many of the same parties

involved in the present case. The ICC turned away the |

challenge, reiterating its adherence to the rule that rail- fi

roads could not charge separately for empty car repair

moves. General Am. Transp. Corp. v. Indiana Harbor

Belt R.R. Co., 357 1.C.C. 102 (1977). In that proceeding,

the Commission confirmed that once the private cars were

put into service they were “instrumentalities of trans- )

portation” whose movement for repairs was the collec-

tive responsibility of the carriers, rather than a “distinct

rail service” provided the individual car owners for which

those owners could be separately charged. Jd. The ICC

ruled that because “[t]he need for such repairs of pri- i

vately owned cars will usually arise as a result of use by

many different carriers over a considerable period of

time. * * * [T]he costs of repair movements of pri-

vately owned cars must be treated as a common cost

” |

which must be shared by all carriers which derive rev-

enue from the national private-car fleet.” Jd. at 127.

The ICC noted that the costs of empty car repair moves

could be recouped through the charges for carrying

freight in the cars. While this might mean that some

carriers would end up with more than their proportional

share of the costs of empty car repair moves, the Com-

mission recognized that railroads and private tank car

owners had agreed to an “equalization rule” discourag-

ing excessive empty mileage. The Seventh Circuit af-

firmed the ICC ruling as the “correct conclusion,” hold-

ing that the imposition of separate charges for empty car

repair movements would violate the Interstate Commerce

Act. Indiana Harbor Belt R.R. Co. v. General Am.

Transp. Corp., 577 F.2d 394, 400-401 (7th Cir. 1978).

Nonetheless, in 1983, the same railroad involved in the

1977 proceeding (along with another) filed proposed tar-

iffs seeking to impose separate charges for empty car re-

pair moves. Petitioners initiated an adjudicatory pro-

ceeding before the ICC to block the tariffs. Mid-way

through the adjudication process the ICC published a

notice in the Federal Register under the authority of the

“rule making” provision of the Administrative Procedure

Act, 5 U.S.C. § 553, “advising the public and the parties

* * * that we may modify or reverse our prior decisions,”

and soliciting comments from interested persons. 49 Fed.

Reg. 39,740 (Oct. 10, 1984). It followed up with another

notice seeking additional comments, again citing the au-

thority of the rule making provision of the APA. 50 Fed.

Reg. 10,867-68 (March 18, 1985). Three years later the

Commission reversed its 40-year-old policy, announcing

that railroads could charge private car owners for empty

repair moves.

Relying on the public comments it had received as a

result of its invocation of the APA rule making proceed-

ings, the ICC decided that its 40 year-old rule was an

inefficient and inequitable means of compensating car-

riers for empty car repair moves. App. 44a-48a. The

Commission reasoned that the system of recouping the

costs through freight charges resulted in some carriers

bearing more than their fair share of repair move costs.

It viewed such a result as contrary to “Congressional

direction” in the 4R Act’ and the Staggers Act® requir-

ing “the Commission to encourage efficient pricing and

provide all carriers with a realistic opportunity to earn

adequate revenues.” App. 56a. Finally, the ICC applied

the new rule retroactively to the charges proposed in the

1983 tariffs, rejecting petitioners’ contention that such an

about-face—announced as a result of rule making pro-

cedures—could only be applied prospectively. App. 65a-

66a. Vice Chairman Lamboley dissented. App. 68a.

On April 14, 1989, the Court of Appeals upheld the

Commission’s action. The court below held that the

agency’s prior policy had not been legislatively ratified,

despite Congress’ failure to overturn it when revisiting

the pertinent statute in 1978 and 1980. The Court then

held that the agency’s “reinterpretation” was reasonable,

not because new statutory provisions compelled the new

policy, App. 15a, and not because of any specific congres-

sional intent on the issue, App. 14a, but rather because

“the Commission permissibly discerned an emerging con-

gressional purpose to permit carriers to price their serv-

ices efficiently in accordance with both the costs properly

chargeable to such services and market forces.” Jd. (em-

phasis added).

Finally, the lower court upheld retroactive application

of this new regulatory regime. It held that the adjudi-

Railroad Revitalization and Regulatory Reform Act, Pub. L.

No. 94-210, 90 Stat. 31 (1976). The 4R Act was in effect in 1977

when the Commission reaffirmed its rule banning separate charges

for empty car repair moves in the first Jndiana Harbor proceeding.

See 357 I.C.C. at 129 n.30, 131 n.31.

2 Pub. L. No. 96-448, 94 Stat. 1895 (1980).

catory proceeding had not been transformed into a rule

making requiring prospective application only, despite

the ICC’s own express invocation of the APA rule making

provisions. According to the Court of Appeals, the

agency’s formal solicitation of and reliance on public

comments under the APA was no different than judicial

consideration of amicus briefs. App. 25a.

Petitioners sought rehearing, which was denied on June

30, 1989. App. 3la. Judge Silberman—the author of the

panel opinion—issued an additional opinion concurring

in the denial of rehearing. He recognized, quoting from

a recent Supreme Court concurring opinion by Justice

Sealia, that “arguments no doubt can be advanced in sup-

port of limiting agencies’ policymaking use of the adju-

dicatory form to circumstances where ‘legal consequences

hinge upon the interpretation of statutory requirements,

and where no pre-existing interpretive rule construing

those requirements is in effect,’ [Bowen v.] Georgetown

Univ. Hosp., 109 S. Ct. at 480 (Sealia, J., concurring) ,”

but he concluded that “the law of this circuit is emphati-

cally to the contrary.” App. 34a.

REASONS FOR GRANTING THE WRIT

The court below erred in upholding the ICC’s reversal

of its 40-year-old rule prohibiting railroads from impos-

ing separate charges on car owners for empty repair

moves. The decision below merits review by this Court

for four separate reasons. First, the ruling below con-

flicts with holdings of the Seventh Circuit that the Inter-

state Commerce Act forbids such charges. See Indiana

Harbor Belt R.R. Co. v. General Am. Transp. Corp.,

supra; Atchison, T. & S. F. Ry. Co. v. Union Tank Car

Co., 611 F.2d 1184, 1188 (7th Cir. 1979); Evans Prods.

Co. v. ICC, 729 F.2d 1107, 1109 (7th Cir. 1984). Reso-

lution of this conflict is of critical importance to the rail

and private railcar industries,

Second, the approach of the court below is contrary to

this Court’s oft-repeated admonition that “when Con-

gress revisits a statute giving rise to a longstanding ad-

ministrative interpretation without pertinent change, the

‘congressional failure to revise or repeal the agency’s in-

terpretation is persuasive evidence that the interpreta-

tion is the one intended by Congress.’” Commodity Fu-

tures Trading Comm’n Vv. Schor, 478 U.S. 833, 846 (1986),

quoting NLRB v. Bell Aerospace Co., 416 U.S. 267, 274-

275 (1974). The court below rejected petitioners’ reli-

ance on this doctrine, insisting upon express evidence that

Congress was aware of and had.approved the ICC’s long-

standing rule. The Circuits are in considerable disarray

with respect to the standards for applying this doctrine,

and this Court should grant the writ to resolve the con-

fusion.

Third, the holding below undermines a central tenet of

rail regulation—that railroads must bear the costs of

providing suitable railcars as part of their common car-

rier obligation. Such a marked departure from a basic

principle historically governing regulation of an impor-

tant national industry should not be permitted to stand

without review by this Court.

Finally, this Court should grant review to resolve the

conflict created by the lower court’s decision to permit

retroactive application of the ICC’s new rule. The deci-

sion below blurred the “ ‘dichotomy between rule making

and adjudication’”’—the dichotomy upon which “ ‘the

entire [Administrative Procedure] Act is based.’ ”’ *—and

permitted retroactive application even though the ICC

invoked and relied upon the APA’s prospective rule mak-

ing provisions. Judge Silberman, in his opinion on re-

hearing, expressly recognized that the law of his Circuit

was “emphatically * * * contrary” to Justice Scalia’s

3 Bowen V. Georgetown Univ. Hosp., 109 S. Ct. 468, 477 (1988)

(Scalia, J., concurring), quoting Attorney General’s Manual on the

Administrative Procedure Act (1947) at 138-14.

reasoning last Term in his concurring opinion in Bowen.

App. 34a. Judge Silberman also cited conflicting au-

thority from the Ninth Circuit. Jd. This Court should

grant the writ to resolve the conflict and determine

whether the arguments raised by Justice Scalia in his

concurring opinion or the “contrary” view of the court

below should prevail.

I. The Court Below Erred In Dismissing The Significance

Of Congress’ Failure To Disturb The ICC’s Longstand-

ing Rule

When the Commission ruled more than 40 years ago

that railroads could not impose separate charges for

empty repair moves, its decision was based on a reading

of the Interstate Commerce Act. The Commission con-

cluded that during such movements the cars were “instru-

ment{[alities] of transportation” and not “property sub-

ject to transportation charges within the meaning of sec-

tion 6(7) of the act.” Union Tank Car Co., 268 I.C.C.

338, 342 (1947). When the ICC reaffirmed this rule 30

years later, its decision was once again based on a con-

struction of the statute. In addition to quoting from its

Union Tank Car analysis, the Commission further ruled

that empty repair moves were not “distinct rail services”

under 49 U.S.C. § 10728 for which separate rates could

be charged. General Am. Transp. Corp. v. Indiana Har-

bor Belt R.R. Co., 357 I.C.C. 102, 129 (1977) On appeal,

the Seventh Circuit agreed that the railroads’ effort to

assess such charges in that case was a violation of the In-

terstate Commerce Act. Jndiana Harbor Belt R.R. Co. V.

General Amer. Transp. Corp., 577 F.2d at 400.

Congress extensively amended the Interstate Commerce

Act in 1980 with passage of the Staggers Act.‘ Yet Con-

4Pub. L. No. 96-448, 94 Stat. 1895 (1980). See Coal Exporters

Ass’n of the United States, Inc. v. United States, 745 F.2d 76, 80

(D.C. Cir. 1984) (“[t]he Staggers Rail Act of 1980 was a complex

and comprehensive amendment to the [Interstate Commerce Act]}”’).

gress did not make any pertinent changes to the provi-

sions on which the ICC had relied in concluding in 1947

and again in 1977 that empty repair moves were not sub-

ject to separate charges, nor to the provisions on which

the Seventh Circuit had relied in upholding the ICC’s

interpretation of the Act as the “correct conclusion.” 577

F.2d at 401.

Again this background of congressional and judicial

acceptance of the ICC’s established rule, a reversal of the

rule could be justified only by persuasive evidence that

Congress had changed its mind. The ICC pointed to no

such evidence, and the court below acknowledged that the

agency cited no new legislative provisions “reflective of

Congress’ specific intent on the question.” App. 14a. As

the court stated, the provisions on which the ICC relied

“do not compel the approach adopted by the Commission

in Indiana Harbor II. None of the provisions is specifi-

cally directed to relations between carriers and car pro-

viders.” App. 15a (emphasis in original). The most that

the Court of Appeals could say was that the agency “per-

missibly discerned an emerging congressional purpose”

supporting its action. App. 14a.

Such an inchoate basis may be sufficient to support an

agency interpretation with respect to an issue of first

impression, or perhaps even a change in an agency inter-

pretation promulgated through rulemaking procedures

and accordingly given prospective effect only. When Con-

gress has revisited the pertinent statute and not altered

a significant, 40-year rule promulgated under the statute,

however, and when that rule is based on a core principle

of common carrier obligation that Congress has not dis-

turbed, the agency should not be permitted to change

course-on such an amorphous basis.

The court below rejected petitioners’ argument that

this history demonstrated congresional acquiescence in

and approval of the longstanding administrative rule,

holding that “the legislative reenactment doctrine re-

RS 0 hee ae de htt

So en et A ee

a age te tit

quires a showing of both congressional awareness and

‘express congressional approval of an administrative in-

terpretation if it is to be viewed as statutorily man-

dated.’” App. 10a, quoting AFL-CIO v. Brock, 835 F.2d

912, 915 (D.C. Cir. 1987).

This Court’s decisions and those of other Circuits, in

contrast, are based on the rule that “Congress is pre-

sumed to be aware” of such a longstanding administra-

tive interpretation, Lorillard v. Pons, 434 U.S. 575, 580

(1978) (emphasis added), and that such interpretations

“are deemed to have been approved by Congress” when,

as here, the pertinent statute is reenacted without change.

Ward v. Commissioner, 784 F.2d 1424, 1430 (9th Cir.

1986) (emphasis added).

The court below itself acknowledged the conflict. After

reiterating its rule that the doctrine “requires” express

evidence of congressional awareness and approval, the

court recognized in footnote that “[t]he Supreme Court

has said, even absent proof of congressional awareness

or approval, that ‘when Congress revisited a statute giv-

ing rise to a longstanding administrative interpretation

without pertinent change, the “congressional failure to

revise or repeal the agency’s interpretation is persuasive

evidence that the intcrpretation is the one intended by

Congress.” ’” 5

This Court has not insisted upon express evidence that

Congress was actually aware of the administrative in-

terpretation held to have been ratified by reenactment.

“It is always appropriate to assume that our elected rep-

resentatives, like other citizens, know the law,” Cannon

v. University of Chicago, 441 U.S. 677, 696-697 (1979)

(emphasis added), and this Court has stated that “ ‘Con-

gress is presumed to be aware of an administrative or

5 App. 10a, n.10, quoting Commodity Futures Trading Comm’n V.

Schor, 478 U.S. at 846, quoting NLRB v. Bell Aerospace Co., 416

U.S. at 274-275 (emphasis added).

judicial interpretation of a statute and to adopt that in-

terpretation when it re-enacts a_ statute without

change.’” Merrill Lynch, Pierce, Fenner & Smith v.

Curan, 456 U.S. 353, 382 n.66 (1982), quoting Lorillard

v. Pons, 434 U.S. at 580-581. This presumption is par-

ticularly appropriate when, as here, the administrative

interpretation had been in effect for several decades prior

to legislative reenactment, had been reaffirmed by the

agency on the eve of legislative reenactment, and that re-

affirmation had been upheld as statutorily compelled by

a Federal Court of Appeals.

Turning to the other prerequisite imposed by the D.C.

Circuit, this Court has clearly held that express con-

gressional approval of a longstanding administrative or

judicial interpretation is not required before applying the

legislative reenactment doctrine. On the contrary, “con-

gressional acquiescence may sometimes be found from

nothing more than silence in the face of an administra-

tive policy.” Haig v. Agee, 453 U.S. 280, 300 (1981).*

The Circuits are in considerable disarray on the ques-

tion. Some Courts of Appeals appear to agree with the

approach of the court below, insisting upon express evi-

dence of legislative awareness and approval. See, e.g.,

Horner V. Jeffrey, 823 F.2d 1521, 1531 (Fed. Cir, 1987)

(“Congress cannot be held to have approved or even been

aware of the [interpretation] when it reenacted the pro-

visions”); American Trucking Ass’ns, Inc. v. ICC, 722

F.2d 1248, 1249 n.3 (5th Cir. 1984); Mayburg v. Secre-

tary of HHS, 740 F.2d 100, 104-105 (1st Cir. 1984).

® See Young V. Community Nutrition Inst., 476 U.S. 974 (1986);

Bob Jones Univ. Vv. United States, 461 U.S. 574 (1988): North

Haven Bd. of Educ. v. Bell, 456 U.S. 512 (1982); United States

v. Rutherford, 442 U.S, 544 (1979); Zemel v. Rusk, 381 U.S. 1, 11

(1965); Udall v. Tallman, 380 U.S. 1, 16-18 (1965); Norwegian

Nitrogen Co. Vv. United States, 288 U.S. 294, 313 (1933); Costanzo

Vv. Tillinghast, 287 U.S. 341, 345 (1932),

~—

Other Circuits take an opposite approach, applying this

Court’s precedents establishing that Congress is presumed

to be aware of longstanding interpretations and deemed

to approve them when it reenacts the underlying statute

without change. See, e.g., Sierra Club v. Hodel, 848 F.2d

1068, 1080 (10th Cir. 1988) (“[e]specially when an

agency has followed a notorious, consistent, and long-

standing interpretation, it may be presumed that Con-

gress’ silence denotes acquiescence”); FMC Wyoming

Corp. Vv. Hodel, 816 F.2d 496, 501 n.11 (10th Cir. 1987),

cert. denied, 108 S. Ct. 772 (1988) (“Congress’ failure

to alter this interpretation while amending the statute in

other respects indicates that legislative intent has been

correctly discerned”); Demarest v. Manspeaker, 1989

U.S. App. LEXIS 13193 (10th Cir. Sept. 5, 1989)

(“{hjad Congress meant to change the existing judicial

and administrative interpretation of [the statute], it

surely could have done so in more express terms”) ; Jn re

Dept. of Energy Stripper Well Exemption Litig., 690

F.2d 1375, 1388 (Temp. Emer. Ct. App. 1982), cert. de-

nied, 459 U.S. 1127 (1983) (congressional failure to

modify viewed as “a significant and probative indication”

) of approval; reenactment without change equated to Con-

gress speaking “loudly, clearly and unequivocally” in favor

of administrative interpretation).

This confusion is also evidenced in intra-circuit con-

flicts. Compare, e.g., Fmali Herb, Inc. v. Heckler, 715

F.2d 1385, 1387-88 n.1 (9th Cir. 1983) (“[t]he regula-

| tion has never been the focus of active debate of judicial

decisions, so deference based upon congressional acquies-

cence is inappropriate”) with Osborn v. American Ass’n

of Retired Persons, 660 F.2d 740, 746 (9th Cir. 1981)

(“[t]he agency's interpretation of the statute is entitled

to still more deference when Congress subsequently re-

enacts the statute without significant change, for it is

then presumed that the agency interpretation has been

implementing the statutory objectives to Congress’ satis-

faction”).

SS te et Seth my

——_a_aea..aaa

A proper understanding of the content of the legisla-

tive reenactment doctrine is of central importance

throughout the area of administrative law. The articula-

tion of the court below—requiring express evidence of

awareness and approval—conflicts with this Court’s ex-

planation of the doctrine and the approach of several

Circuits. This Court should grant the writ to clarify the

scope of the doctrine and provide guidelines for its uni-

form application in the Circuits.

II. The Decision Below Conflicts With Decisions From The

Seventh Circuit

The decision below conflicts with decisions from the

Seventh Circuit holding that empty repair movements of

private railcars “are not distinct rail services for which

a direct charge may be made.” Evans Prods. Co. v. ICC,

729 F.2d at 1109. Accord Indiana Harbor Belt R.R. Co.

v. General Am. Transp. Corp., supra; Atchison, T. & S.

F. Ry. Co. v. Union Tank Car Co., supra. The court below

acknowledged that “the Seventh Circuit twice approved

the Commission’s former position that empty-repair

moves were not distinct rail services,” but dismissed the

significance of these rulings on the ground that they did

not “rest[] on a construction of the Interstate Commerce

Act” and did not preclude the ICC from changing course.

App. 9a. The court’s reasoning is unfounded and does not

mitigate the conflict between the Circuits.

A reading of the Seventh Circuit’s opinion in Jndiana

Harbor Belt I rather clearly discloses that its decision

upholding the ICC’s prior rule was based on a construc-

tion of the Interstate Commerce Act. The Seventh Circuit

expressly and unambiguously held that the railroad’s im-

position of charges on car owners for empty car repair

moves “is an obvious and direct violation of Section 1(5)

of the Interstate Commerce Act,” “violates Section 1(6),”

and “also violates Section 1(11) of the Act.” 577 F.2d at

400. After noting that “[c]ar service is defined in Sec-

—— —— es i

tion 1(10) to include the ‘use, control, supply, movement,

distribution, exchange, interchange and return of locomo-

tives, cars and other vehicles used in the transportation

of property,’” the Seventh Circuit concluded that

“{ejlearly, the imposition of a switching charge on a

movement of cars which is a part of the transportation

service comprehended by the charge on loaded movements

is an unreasonable and unlawful car service practice.” Jd,

The assertion of the court below that the Seventh Cir-

cuit did not construe the Interstate Commerce Act is

amply refuted by the language of the Seventh Circuit's

opinion. The Seventh Circuit did not hold simply that

the ICC’s prior rule was a permissible construction of the

statute; it was the “correct conclusion” based on the

statute itself. 577 F.2d at 401.

The Seventh Circuit’s later decisions relying upon /n-

diana Harbor I cited the statutory terms of art in ex-

plaining the holding of Jndiana Harbor I. In Atchison,

T. & S. F. Ry. Co. v. Union Tank Car Co., 611 F.2d at

1188, the court noted that private cars, “albeit ‘property’

in the ordinary sense of that term, are ‘instrumentalities

of transportation’ and therefore not subject to ordinary

freight charges.” In Evans Products, 729 F.2d at 1109,

the court stated that “[r]jail cars that have entered the

national fleet and are in use shipping goods generally are

considered instrumentalities of transportation for which

no freight charges for their movement may be imposed”

and that “(rjepair switches are not distinct rail services

for which a direct charge may be made.” “Instrumental-

ity * * * related to the movement of * * * property” and

“distinct rail services” are of course statutory phrases,

see 49 U.S.C. $$ 10102(26), 10728, and the Seventh Cir-

cuit decisions—contrary to the view of the court below—

construed the meaning of those statutory phrases.

The decision below thus conflicts with the Seventh Cir-

cuit decisions on whether the Interstate Commerce Act

permits railroads to impose separate charges for empty

private car repair moves. This Court should grant the

writ to resolve this conflict.

III. The ICC’s New Rule Undermines A Central Tenet Of

Rail Regulation That Congress Has Not Rejected

The court below upheld the Commission’s about-face

because of the policies it discerned in the Staggers Act of

promoting an efficient railroad rate structure and pre-

venting cross-subsidization. See App. 14a-15a. The court

noted the ICC’s concern that some railroads bore more

than their fair share of empty repair move costs, because

they had a large number of empty repair moves—for

which they could not charge separately—trelative to

freight movements in the cars, through which they could

attempt to recover the empty repair move costs. But the

ICC’s new rule does not promote the policies of the Stag-

gers Act by correcting any possible misallocation of

empty repair move costs among railroads. Rather, it ar-

bitrarily and capriciously shifts the costs of such moves

away from all railroads and onto the car providers.

Nothing in the Staggers Act, however, suggested alter-

ing the historic common carrier obligations of the rail-

roads, including “the fundamental common carrier obli-

gations to furnish suitable equipment for the transporta-

tion of all traffic handled by [the railroad] and to main-

tain such equipment in proper condition for transporta-

tion use.” Indiana Harbor Belt R.R. Co. v. General Am.

Transp. Corp., 577 F.2d at 399. As the Seventh Circuit

noted in its Evans Products decision—issued several

years after passage of the Staggers Act—‘|[r]ailroad

common carriers are required to offer shippers complete

transportation services; as part of these services, car-

riers must provide shippers with the cars in which

freight is moved.” 729 F.2d at 1108. See also Atchison,

T. & S. F. Ry. Co. v. Union Tank Car Co., 611 F.2d: at

1188 (“the duty to furnish cars is the railroads’, not the

shippers’. Thus when railroads use cars other than their

—

own to transport property or passengers, the cars are be-

ing used for the revenue purposes of the railroads and

not for the private benefit of the owner’’).

The Commission’s new rule is arbitrary and capricious

because it addresses purported concerns about cross-

subsidization and misallocation of empty repair move

costs among railroads by shifting those costs away from

the railroads altogether and onto private car providers.

Under historic common carrier doctrine, it is the

railroads—and not the car owners—who must bear the

full cost of owning and maintaining the cars. See 49

U.S.C. § 11121 (a) (1).

Both the ICC and the Court of Appeals professed con-

tinued adherence to the principle of carrier responsibility

for the costs of owning railroad cars. App. 4a, 38a. The

new rule, however, permits carriers to evade that historic

responsibility. Indeed, the court below recognized that

the Commission

may have been a bit facile in its initial opinion in sug-

gesting that its decision involved only an accounting

change that would have little or no impact in deter-

mining who—as between carriers and car providers

—would bear the burden of the costs involved. In its

order on rehearing, however, the Commission con-

ceded that car providers may be unable to recoup

completely the costs of empty-repair moves from

railroads * * *. And the Commission reiterated, in

any event, that the statute simply does not guarantee

providers full cost recovery. [App. 17a.]

Under the new rule, railroads can charge providers

for empty repair moves—concededly a component of the

common carrier obligation—and the car providers are to

attempt to recoup those costs through adjustments in

allowances the providers receive from the carriers for

furnishing the cars. This new regime will not result in

“full cost recovery” by the car providers for several

reasons:

* Carriers in recent years have been unwilling to

update private car allowances to reflect increased

costs of ownership.

* Some carriers have imposed arbitrary “caps” on

mileage allowances to car providers.

* Many car providers furnish cars under long-term

contracts, with rates set under the prior regula-

tory regime that did not allow empty repair move

charges.

In the absence of full cost recovery, however, the car

providers—not the carriers—will bear at least part of

the cost of the common carrier obligation to furnish suit-

able railcars. Nothing in the Staggers Act suggested

rationalizing rail rates by shifting common carrier ob-

ligations from the common carriers, individually or col-

lectively. If Congress had intended the Act to accomplish

such a significant change, it is reasonable to expect that

it would have mentioned it in the text of the statute or

the voluminous legislative history. It did not do so. This

failure is particularly telling given the longstanding ad-

ministrative adherence to and judicial approval of the

established rule.

Neither the agency nor the court below could point to

any specific congressional intent supporting reversal of

the empty repair move rule. The ICC and D.C. Circuit

instead relied upon a patchwork of hints in the Staggers

Act pointing to “an emerging congressional purpose.”

App. 14a. As this Court noted recently, however, the

“ “deference owed to an expert tribunal cannot be allowed

to slip into judicial inertia which results in the unau-

thorized assumption by an agency of major policy deci-

sions properly made by Congress.’” Bureau of Alcohol,

Tobacco & Firearms v. FLRA, 464 U.S. 89, 97 (1983),

quoting American Ship Building Co. v. NLRB, 380 U.S.

300, 318 (1965).

DIE i NR NB te At NO ON a da AN er

—"

oe rate

dP ia a RAIN tl le WN id te

There is no evidence in the Staggers Act that Congress

made the policy decision to alter the historic common car-

rier obligations of railroads to bear the cost of furnish-

ing the cars in which they transport property. In fact,

Congress left undisturbed the longstanding rule imple-

menting this obligation. Against this background, it was

arbitrary and capricious for the ICC to change the rule

and embrace a new policy. The question merits review

by this Court because the court below has misinterpreted

an important federal statute and erroneously ascribed to

Congress an intent to undermine a basic principle of

common carrier obligation.

IV. The Court Below Erred In Permitting The Agency To

Apply Its Reversal Of Policy Retroactively

What is particularly troubling is the decision of the

court below that the ICC could apply its new rule retro-

actively to petitioners, who had relied on the old estab-

lished rule in shaping their business relationships with

the intervenor railroads. This decision conflicts with de-

cisions from other Circuits on the retroactive application

of new agency interpretations, and with the recent deci-

sion of this Court in Bowen v. Georgetown University

Hospital, 109 S. Ct. 468 (1988). The opinion for the

Court and Justice Scalia’s concurring opinion in Bowen—

issued after briefing was complete in the present case—

are highly pertinent to the retroactivity issue, but were

not cited and apparently not considered by the panel in

its initial decision. In his supplemental opinion on re-

hearing, Judge Silberman—author of the panel opinion

—expressly noted that the views expressed in Justice

Sealia’s opinion were contrary to the law applied by the

Court of Appeals for the District of Columbia Circuit.

App. 34a.

The error of the court below derived from the her-

maphroditic nature of these proceedings. It is well es-

tablished that agency adjudication applies retroactively,

and agency rule making applies prospectively only. This

makes sense because, as Justice Scalia explained in his

concurring opinion in Bowen, “[a]djudication deals with

what the law was; rulemaking deals with what the law

will be.” 109 S. Ct. at 478 (emphasis in original). In

this case, the ICC converted what began as an adjudica-

tion to apply its pre-existing rule into a rule making pro-

ceeding to change that rule. The Commission nonetheless

reverted to viewing the proceeding as an adjudication in

applying its new rule retroactively to petitioners, even

though the new rule admittedly did not reflect what the

law had been.

The Commission’s decision to overturn its established

policy on the permissibility of separate charges for empty

car repair moves was agency rule making. The results of

such rule making may be applied prospectively only.*. The

ICC itself stayed the normal course of what began as an

adjudicatory proceeding and issued a notice in the Fed-

eral Register soliciting public comments on the desirabil-

ity of changing its established policy. When it did so,

the agency expressly invoked and relied upon Section 553

of the APA, entitled “Rule making.” 5 U.S.C. § 553

(1982). Over petitioners’ objections, it transformed the

proceeding from one “designed to adjudicate disputed

facts in particular cases” * into a broader undertaking

to consider “what the law will be.” Bowen, 109 S. Ct. at

478 (Scalia, J., concurring). |

The transformation of the proceeding was not simply a

matter of form but of substance as well. The ICC’s re-

quests for comments under the APA rule making provi-

sions generated responses concerning industry practices

7 See Bowen, 109 S. Ct. at 471; SEC v. Chenery Corp., 332 U.S.

194, 202 (1947).

8 Association of Nat’l Advertisers v. FCC, 627 F.2d 1151, 1165

(D.C. Cir. 1979) (emphasis added), cert. denied, 447 U.S. 921

(1980).

PAD RY ccna add bac tnhthes 5 a a dae Ral ah SE A I NE TARLETON OES Snell p eM rnp me

and policies from over 20 car providers, shippers, rail-

roads, trade associations, and other organizations in ad-

dition to the parties initially before the agency. See App.

43a, n.10-12. The agency expressly relied upon iegisla-

tive facts it discerned on the basis of these filings in con-

cluding that there was an industry-wide misallocation of

empty repair move costs among railroads, and in decid-

ing to overturn its established policy. App. 44a-48a.

Such solicitation, consideration, and reliance on legisla-

tive facts submitted by representatives of various broad

segments of the industry is emblematic of agency rule-

making.°®

The lower court’s sole response to this problem was to

note that courts often consider amicus briefs in deciding

eases. App. 25a. The analogy is misplaced and mislead-

ing. Courts are empowered to act only in an adjudicatory

capacity, and any consideration of amicus briefs does

not transform the nature of the court’s task. Indeed, in

judicial proceedings amicus briefs cannot be filed as a

matter of right, see, e.g., Fed. R. App. P. 29; S. Ct. Rule

36, cannot expand the issues or arguments presented by

the parties before the court, see, e.g., UPS v. Mitchell,

451 U.S. 56, 60 n.2 (1981), and need not be considered at

all by the court. Agencies, in contrast, can proceed either

through adjudication or rule making. When, as here, an

agency invokes the rule making procedures of Section 553

of the APA, any interested member of the public acquires

the right to submit comments, which can expand the con-

tentions and issues raised by the parties, and any rele-

vant comments that are submitted must be considered by

the agency. See 5 U.S.C. $ 553(e) (1982).

In upholding the ICC’s approach, the court below

blurred the “ dichotomy between rule making and adjudi-

® See, e.g., Independent Bankers Ass’n of Ga. v. Beard of Gov-

ernors of the Fed. Reserve Sys., 516 F.2d 1206, 1215 (D.C. Cir.

1975) ; Wisconsin Gas Co. v. FERC, 770 F.2d 1144, 1166 (D.C. Cir.

1985), cert. denied, 476 U.S. 1114 (1986).

cation’”’—the dichotomy upon which “ ‘the entire [Ad-

ministrative Procedure] Act is based’”—and left peti-

tioners with the worst of both worlds.’® The Court of

Appeals upheld the agency’s change in position by treating

the case as rule making, in which the agency was striving

to “discern[] an emerging congressional purpose.” App.

14a. Such an effort would not pass muster in an adjudi-

cation, concerned with “what the law was.” Bowen, 109

S. Ct. at 478 (Scalia, J., concurring). Once it upheld the

new rule, however, the Court shifted gears and treated

the case as an adjudication, thereby upholding retroactive

application of the new agency interpretation. This whip-

sawing of petitioners between rule making and adjudica-

tion raises fundamental issues of recurring significance

to administrative law, issues which this Court should

grant certiorari to consider.

As Judge Silberman intimated on rehearing, the de-

cision below conflicts not only with Justice Scalia’s opin-

ion in Bowen, but also with the Ninth Circuit’s decision

in Ford Motor Co. v. FTC, 673 F.2d 1008 (9th Cir.

1981), cert. denied, 459 U.S. 999 (1982). See App. 34a.

In Ford Motor the Ninth Circuit ruled that the FTC

could not proceed through adjudication to change existing

law in a manner that had widespread applicability, but

must use rule making. See also Patel v. INS, 688 F.2d

1199 (9th Cir. 1980). The court specifically noted that

a pending rule making addressed the same problem as the

FTC’s adjudicator proceeding. 673 F.2d at 1010. The

pertinent facts are indistinguishable here: there is no

question that the ICC’s decision changed the law, or that

the decision will apply generally throughout the industry.

And here the ICC invoked the APA rule making provi-

10 Bowen, 109 S. Ct. at 477 (Scalia, J., concurring) quoting

Attorney General’s Manual on the Administrative Procedure Act

(1947) at 13-14. The Supreme Court has “repeatedly given great

weight” to the Manual in construing the APA. See Bowen, 109

S. Ct. at 476 (Scalia, J., concurring) (citing cases).

sions not in another pending proceeding but in this very

proceeding. Under the Ninth Circuit’s Ford Motor ruling,

the ICC’s change in the law could only be effected through

rule making, and thus could not be retroactively applied.

This Court should grant the writ to resolve this basic

conflict on an important and recurring issue of admin-

istrative law.

The approach of the court below is also in sharp con-

trast to that of the Fifth Circuit in Nueces County Nav-

igation Dist. No. 1 v. ICC, 674 F.2d 1055 (5th Cir.),

cert. denied, 459 U.S. 1085 (1982). In that case the Court

of Appeals upheld the ICC’s conversion of an adjudicatory

proceeding into a rule making, but only after stressing

that “no retroactive liability was imposed” as a result

of the hybrid proceeding and that “the only effect of the

adoption of the new standard * * * is to permit unequal-

ized rates in the future. * * *.” Id. at 1066 (emphasis

added). That plainly is not the case here; the retro-

active application of the ICC’s new rule yields charges

in excess of $3 million in this case.”

11 See Ct. App. Br. for Pets. at 14 n.16.

CONCLUSION

For the foregoing reasons, the Court should grant the

writ and reverse the decision below.

DAVID F. ZOLL

E. THOMAS SMERDON, JR.

CHEMICAL MANUFACTURERS

ASSOCIATION

2501 M Street, N.W.

Washington, D.C. 20037

(202) 887-1158

JOHN L. OBERDORFER

Scott N. STONE

PATTON, Boccs & BLOW

2550 M Street, N.W.

Washington, D.C. 20037

(202) 457-6000

Counsel for Petitioner Chemical

Manufacturers Association

HENRY M. WICK, JR.

WICK, RICH, FLUKE & STREIFF

1610 Two Chatham Center

Pittsburgh, PA 15219

(412) 765-1600

Counsel for Petitioner U.S. Clay

Producers Traffic Association,

Ine.

HAROLD E. SPENCER

BELNAP, SPENCER, MCFARLAND

EMRICH & HERMAN

20 North Wacker Drive

Chicago, Illinois 60606

(312) 236-0204

Counsel for LO Shippers Action

Committee

* Counsel of Record

Respectfully submitted,

PATRICK M. RAHER *

ELIsA C. MASSIMINO

HOGAN & HARTSON

555 Thirteenth Street, N.W.

Washington, D.C. 20004

(202) 637-5682

THOMAS F. MCFARLAND, JR.

BELNAP, SPENCER, MCFARLAND,

EMRICH & HERMAN

20 North Wacker Drive

Chicago, Illinois 60606

(312) 236-0204

Counsel for Petitioners General

American Transportation

Corporation, General Electric

Railear Services Corporation,

Union Tank Car Company,

and Railway Progress

Institute Committee on

Tank Cars

PETER A. GREENE

R. HALE FOOTE

THOMPSON, HINE & FLORY

1920 N Street, N.W.

Suite 700

Washington, D.C. 20036

(202) 331-8800

Counsel for Petitioner

MBF Industries, Inc.

APPENDICES

‘

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 9, 1989 Decided April 14, 1989

No. 87-1125

GENERAL AMERICAN TRANSPORTATION CORPORATION, et ai.,

- Petitioners

INTERSTATE COMMERCE COMMISSION and

UNITED STATES OF AMERICA,

Respondents

Lo SHIPPERS ACTION COMMITTEE,

BALTIMORE AND OHIO CHICAGO TERMINAL RAILROAD Co.,

U.S. CLAY PRODUCERS TRAFFIC ASSOCIATION, INC.,

ASSOCIATION OF AMERICAN RAILROADS,

CHEMICAL MANUFACTURERS ASSOCIATION,

Intervenors

No. 87-1171

RAILWAY PROGRESS INSTITUTE COMMITTEE ON TANK CARS,

- Petitioners

INTERSTATE COMMERCE COMMISSION and

UNITED STATES OF AMERICA,

Respondents

ASSOCIATION OF AMERICAN RAILROADS,

BALTIMORE AND OHIO CHICAGO TRMINAL

RAILROAD Co., et al.,

CHEMICAL MANUFACTURERS ASSOCIATION,

MBF INpbustTRrIEgs, INC.,

Intervenors

o-—— -- --- -e

No. 88-1284

RAILWAY PROGRESS INSTITUTE COMMITTEE ON

TANK CARs, et al.,

Petitioners

Vv.

INTERSTATE COMMERCE COMMISSION and

UNITED STATES OF AMERICA,

Respondents

ASSOCIATION OF AMERICAN RAILROADS,

BALTIMORE AND OHIO CHICAGO TERMINAL

RAILROAD Co., et al.,

Intervenors

Petitions for Review of Orders of the

Interstate Commerce Commission

Patrick M. Raher, with whom Elizabeth B. Heffernan,

Thomas F. McFarland, Jr., David F. Zoll, John L. Ober-

dorfer, Scott N. Stone, Peter A. Greene, R. Hale_ Foote

and Henry M. Wick, Jr., were on the joint brief, for

petitioners and intervenors Chemical Manufacturers As-

sociation, MBF Industries, Inc., and U.S. Clay Producers

Traffic Association, Inc. in 87-1125, 87-1171 and 88-1284.

Peter F. Rousselot also entered an appearance for peti-

tioners in 87-1171.

Dennis J. Starks, Attorney, Interstate Commerce Com-

mission, with whom Henri F. Rush, Deputy General

Counsel, Robert S. Burk, General Counsel, John J.

Powers, III and John P. Fonte, Attorneys, Department of

Justice, were on the brief, for respondents in 87-1125,

87-1171 and 88-1284.

Stephen C. Herman, with whom Harold E. Spencer

was on the brief, for intervenor LO Shippers Action Com-

mittee in 87-1125, 87-1171 and 88-1284.

Robert M. Jenkins, III, with whom Paul A. Cunning-

ham, Mare D. Machlin, W. Susanne Addy, Joseph D.

Anthofer, James L. Howe, III, John B. Norton, William

R. Power, Charles C. Rettberg, Alice C. Saylor, James

C. Schultz, John MacDonald Smith, J. Thomas Tidd and

Dennis W. Wilson, were on the brief, for intervenor As-

sociation of American Railroads in 87-1125, 87-1171 and

88-1284.

Anna M. Kelly, Emried D. Cole, Jr., and Paul R. Hitch-

cock filed a joint brief for intervenors The Indiana Har-

bor Belt Railroad Co. and the Baltimore and Ohio Chicago

Terminal Railroad Co. in 87-1125, 87-1171 and 88-1284.

Lawrence M. Cohen and Shayle P. Fox filed a brief for

amicus curiae Resear, Inc. urging that the petitions be

granted.

William Henry Barrett also entered an appearance for

amicus curiae Rescar, Ine.

Before: SILBERMAN, WILLIAMS and SENTELLE, Circuit

Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge: In these consolidated cases,

petitioners’ request review of the Interstate Commerce

Commission’s reversal of a forty-year old policy that sub-

stantially prevented railroads from charging the owners

of private railears for the costs of transporting their

cars (when empty) to repair depots for ordinary main-

1We use the term “petitioner” to refer collectively to peti-

tioners General American Transportation Corporation, General

Electric Railcar Services Corporation, Union Tank Car Company,

and intervenors in support of petitioners Chemical Manufacturers

Association, MBF Industries, Inc., U.S. Clay Producers Traffic

Association, and LO Shippers Action Committee (“LOSAC”).

tenance. We hold that the Commission’s reinterpretation

of the statute is permissible and rationally explained,

and further conclude that it was within the Commission’s

discretion to apply its new policy retroactively to the

parties before it in this adjudication. Accordingly, we

deny the petitions in all respects.

Railroads, pursuant to their common-carrier obliga-

tions under the Interstate Commerce Act, must provide

railears suitable for the transportation of a broad range

of property, including agricultural products, flammable

liquids, as well as crated freight. In part because of

these diverse requirements, it has proved impracticable

for rail common-carriers to invest the capital necessary

for the acquisition of general-use and specialty rolling

stock. Carriers, therefore, commonly lease railcars both

from firms in the business of supplying railears and, oc-

casionally, from shippers themselves. Under these leasing

arrangements, railroads fulfill their common-carrier ob-

ligation to make available suitable railears by paying car

providers their costs of owning the rolling stock through

a variety of means, including direct “mileage allowances”

and offsets on line-haul freight tariffs.

Railears “provided” to railears in this manner accrue

a substantial amount of “empty mileage’”—mileage trav-

eled without carrying any freight—in part because rail-

cars commonly make a so-called “empty return.” Rail-

roads are-not- permitted to charge the railear owners

or car providers separately to return an empty car to

the point of origination; instead, carriers: may recover

the cost of an empty return only by incorporating it in

their rates for the line-haul movement of freight. In

addition, railears are period‘cally moved empty to repair

depots selected by car providers. Up until the challenged

order was filed, the Commission treated such empty-

repair mileage identically to empty-return mileage by

prohibiting carriers (in most circumstances) from charg-

ing car providers separately for empty-repair moves. in

a 1977 adjudication involving many of the parties before

us today, see General Am. Transp. Corp. v. Indiana Har-

bor Belt R.R. Co., 357 1.C.C. 102 (1977). (“Indiana Har-

bor I’), aff'd sub nom. Indiana Harbor Belt R.R. Co. v.

General Am. Transp. Corp., 577 F.2d 394 (7th Cir.

1978), the Commission reaffirmed its then longstanding

prohibition on empty-repair-move charges. It held that

private railcars moving empty for repair continued to

serve as “instrumentalities of transportation” during

such movements since repairs enabled railroads to main-

tain their use of such cars for revenue-generating pur-

poses. Accordingly, the Commission concluded that empty-

repair moves were not “distinct rail services” for which

railroads could impose a separate tariff; rather, such

moves were deemed a collective responsibility of those

carriers who derive more than de minimus economic ben-

efit (through line-haul freight charges) from the use of

privately-owned railcars. 357 I.C.C. at 126-27.

Whatever its merits, Indiana Harbor I’s regime of col-

lective railroad responsibility for empty-repair moves left

certain carriers (predominantly switching or terminating

railroads)? with an empty-repair mileage burden con-

siderably out of proportion to the economic benefit those

carriers derived from the line-haul movement of freight.

And cross-subsidization among railroads was not the only

perceived evil of Indiana Harbor I: the rule was believed

to encourage inefficient depot selections because the costs

of empty-repair transportation were imposed on parties

other than those selecting the repair depot locations. In

1983, the Indiana Harbor Belt Railroad (“IHB”) and

the Baltimore & Ohio Chicago Terminal Railroad Com-

pany (“BOCT”), two carriers that found themselves dis-

2“Switching railroads” include short lines that transfer cars

between line-haul networks, while “terminating railroads” provide

service at either end of a commonly-traversed network.

advantaged by Indiana Harbor I, filed proposed tariffs

for empty-repair moves in an effort to prompt the Com-

mission to change course. The IHB and the BOCT con-

tended that the statutory basis for the theory of collective

responsibility had been undermined by recent congres-

sional enactments designed to give railroads greater flex-

ibility in imposing tariffs for rail services. The proposed

tariffs elicited virtually immediate complaints from car

providers,’ and the insta: t proceeding began.

After an initial dismissal of the complaints by an ad-

ministrative law judge and a subsequent reversal by the

ICC Review Board (holding that Indiana Harbor I con-

trolled the case), the complaints were appealed to the

full Commission in July 1984. The ICC stayed the Re-

view Board’s order and published a notice in the Federal

reversing Indiana Harbor I. See 49 Fed. Reg. 39,740

(1984) ; see also 50 Fed. Reg. 10,867 (1985) (soliciting

additional comments). The Commission thereafter re-

opened the record underlying the complaints before it

(and in Indiana Harbor J) and invited industry com-

ments concerning, among other issues, whether or not the

prohibition against empty-repair-move charges was effi-

cient and equitable.

Three years later, after compiling an extensive record,

the Commission reversed Jndiana Harbor I and ruled

that carriers may impose tariffs on car providers for

empty-repair moves. See General Am. Transp. Corp. v.

Indiana Harbor Belt R.R. Co., 3 1.C.C.2d 599 (1987)

(“Indiana Harbor II’). The Commission revisited the

statutory questions analyzed in Indiana Harbor I and

concluded that the Interstate Commerce Act, at least

after its amendment by the Railroad Revitalization and

3 The complainant car providers unsuccessfully sought interim

ICC suspension of the proposed tariffs. See 49 U.S.C. § 10707

(1982) (providing suspension authority).

Regulatory Reform Act (“the 4R Act’’)* and the Stag-

gers Act® does not prohibit carriers from imposing an

initial charge on car providers for empty-repair moves.

See Indiana Harbor II at 606-11. The ICC further ex-

plained that permitting carriers to impose initial repair-

move-charges would redress the problem of intercarrier

misallocation of empty-repair-mileage burdens and im-

prove efficiency in the selection of repair depots by plac-

ing empty-repair-transportation costs, in the first in-

stance, on car providers. See id. at 613-16. The ultimate

responsibility for the costs of owning railcars, including

the costs of empty-repair moves, would continue to be

transferred to railroads through customary channels—

such as mileage allowances. See id. at 614. Since the ICC

concluded that Indiana Harbor I’s prohibition on empty-

repair-move charges no longer was viable under the Act,

it upheld the empty-repair tariffs in the adjudication

before it. See id. at 620.

The Commission subsequently denied petitioners’ re-

quest for reconsideration of its Indiana Harbor II ruling,

setting the stage for this proceeding. Before us, peti-

tioners argue that Jndiana Harbor I’s prohibition of

empty-repair charges is specifically required under the

Interstate Commerce Act; that Indiana Harbor II rests

on an unreasonable construction of the Act and is not

supported by a consideration of the legally relevant pol-

icy considerations; and that it was unlawful for the Com-

mission to apply Jndiana Harbor II retroactively to the

specific empty-repair tariffs challenged in the underlying

adjudication.

II.

We are initially faced with the argument that the

Commission’s decision fails the first prong of the Chevron

test that governs federal judicial review of agency statu-

4 Pub. L. 94-210, 90 Stat. 31 (1976).

5 Pub. L. 96-448, 94 Stat. 1895 (1980).

tory interpretation. See Chevron U.S.A. Inc. v. Natural

Resources Defense Council, 467 U.S. 887 (1984). The

Commission’s decision, we are told, runs counter to a spe-

cific legislative intent barring carriers from charging for

the empty movement of privately-owned railcars for re-

pair. We think this contention is insubstantial: neither

the statutory language nor its legislative history clearly

addresses the point at issue.

Petitioners contend that the Act specifically prohibits

carriers from assessing charges for the movement

of instrumentalities of transportation not carrying prop-

erty, and that Congress intended railears moving empty

for repair to be treated as instrumentalities. Petitioners

cite 49 U.S.C. §§ 10761(a)® and 10102(26)"* to support

their argument, but we find their appeal to those sections

of the Act misdirected. Taken together or apart, these

passages do not address the issue we confront. Section

10761(a), as petitioners recognize, merely imposes a

® Except as provided in this subtitle, a carrier providing trans-

portation or service subject to the jurisdiction of the Inter-

state Commerce Commission under chapter 105 of this title

shali provide that transportation or service only if the rate

for the transportation or service is contained in a tariff that is

in effect under this subchapter.

49 U.S.C. § 10761(a) (1982).

7 In this subtitle—

* & &

(26) “transportation” includes—

(A) a locomotive, car, vehicle, motor vehicle, vessel, ware-

house, wharf, pier, dock, yard, property, facility, instrumen-

tality, or equipment of any kind related to the movement of

passengers or property, or both, regardless of ownership or

an agreement concerning use; and

(B) services related to that movement, including receipt, de-

livery, elevation, transfer in transit, refrigeration, icing, ven-

tilation, storage, handling, and interchange of passengers and

property.

49 U.S.C. § 10102(26) (1982).

tariff publication requirement on carriers offering trans-

portation or services within the jurisdiction of the Com-

mission, and in no way purports to restrict categorically

the types of services for which tariffs may be imposed.

And section 10102(26)’s sweeping definition of trans-

portation plainly hurts, rather than helps, petitioners’

strained construction.

Petitioners also rely on 49 U.S.C. § 10728, the provi-

sion that permits carriers to “establish separate rates for

distinct rail services to [] encourage competition[,] pro-

mote increased reinvestment by rail carriers [, and] en-

courage . . . increased non-railroad investment in the

production of rail services.” 49 U.S.C. § 10728(a)

(1982). The best that can be said for this provision,

however, is that it begs the question of whether or not an

empty-repair move constitutes one such distinct service.

To be sure, prior to the Commission’s reversal in Jndiana

Harbor II, the Seventh Circuit twice approved the Com-

mission’s former position that empty-repair moves were

not distinct rail services, see Indiana Harbor Belt R.R.

Co. v. General Am. Transp. Corp., 577 F.2d 394 (7th

Cir. 1978) (affirming Indiana Harbor I on direct re-

view); see also Evans Prods. Co. v. ICC, 729 F.2d

1107 (7th Cir. 1984) (sustaining. Commission’s ap-

plication of Indiana Harbor I to parties before the

court), but neither decision rested on a construction of

the Interstate Commerce Act, much less a finding of spe-

cific congressional intent. Rather, as we read the opin-

ions, the court simply held that the Jndiana Harbor I

policy was not arbitrary and capricious. These prior

judicial affirmations of Indiana Harbor I do not preclude

the Commission from changing course now.

If specific intent is not found in the original legisla-

tion, petitioners argue, it was manifested when Congress

legislatively ratified Indiana Harbor I. We find that con-

tention equally unconvincing. Congress revisited the In-

terstate Commerce Act on two occasions subsequent to

10a

Indiana Harbor I—in 1978 when it recodified the Act ®

and in 1980 when it approved the Staggers Act.® But

we see no indication that Congress was either aware of

or had approved the Commission’s empty-repair-move

policy when it recodified the “distinct rail services” pro-

vision in 1978 or in 1980 when it amended other por-

tions of the Act. We have held that application of the

legislative reenactment doctrine requires a showing of

both congressional awareness and “express congressional

approval of an administrative interpretation if it is to

be viewed as statutorily mandated.” AFL-CIO v. Brock,

835 F.2d 912, 915 (D.C. Cir. 1987); see also UAW v.

Brock, 816 F.2d 761, 767 (D.C. Cir. 1987); Association

of American Railroads v. ICC, 564 F.2d 486, 493 (D.C.

Cir. 1977). Petitioners’ argument thus is unavailing.’

ITI.

We turn to what we see as the heart of petitioners’ case

—that the Commission’s empty-repair-move policy an-

nounced in Jndiana Harbor II rests on an unreasonable

construction of the Interstate Commerce Act. In this sec-

8 Pub. L. 95-473, 92 Stat. 1337 (1978).

® Pub. L. 96-448, 94 Stat. 1895 (1980).

10 The Supreme Court has said, even absent proof of congres-

sional awareness or approval, that “when Congress revisits a

statute giving rise to a longstanding administrative interpretation

without pertinent change, the ‘congressional failure to revise or

repeal the agency’s interpretation is persuasive evidence that the

interpretation is the one intended by Congress.’” Commodity Fu-

tures Trading Comm’n v. Schor, 478 U.S. 833, 846 (1986) (quoting

NLRB v. Bell Aerospace Co., 416 U.S. 267, 275 (1974)). However,

whatever its weight, we believe such “evidence” is more relevant

to Chevron’s second prong. In any event, we think the force of

congressional silence is particularly weak in this case given the

abundant evidence (which we discuss in Part III) that Congress,

in passing the Staggers Act, wanted to put an end to ratemaking

practices involving railroad cross-subsidization and other ineffi-

ciencies.

ee re

lla

tion, we also address petitioners’ challenge to the logic

and rationality of the Indiana Harbor II decision, for we

think the questions posed—has the Commission adopted

an impermissible construction of the Act and is its

empty-repair-move policy arbitrary and capricious—are

quite similar.’ Both questions require us to determine

whether the Commission, in effecting a reconciliation of

competing statutory aims, has rationally considered the

factors deemed relevant by the Act. See AFL-CIO v.

Brock, 835 F.2d at 917; Natural Resources Defense

Council v. EPA, 824 F.2d 1146, 1163 (D.C. Cir. 1987) ;

Rettig v. Pension Benefit Guaranty Corp., 744 F.2d 133,

152 (D.C. Cir. 1984) ; cf. NLRB v. United Food & Comm’l

Workers Union, 108 8. Ct. 418, 421 (1987) (stating that

courts owe deference to agency interpretation “as long as

[] interpretation is rational and consistent with statute”).

While Chevron commands deference to the Commission’s

interpretation of the Act which it administers, we must

“look to many factors, among them being the ‘thorough-

ness, validity and consistency of .. . [the] agency’s rea-

soning,’ ” in determining the precise weight to be assigned

the Commission’s construction in the case before us.

Orloski v. Federal Election Comm’n, 795 F.2d 156, 164

(D.C. Cir. 1986) (quoting Democratic Senatorial Cam-

paign Comm. v. Federal Election Comm’n, 454 U.S. 27,

37 (1981)). Here, of course, we are not asked to review

an agency policy at the point of its initial adoption; the

order under review represents a reversal of an agency

interpretation in force more or less consistently since

1947. See Union Tank Car Co., 268 LC.C. 388 (1947).

But that factor does not mean judicial deference is any

less appropriate; indeed, Chevron itself involved an agency

about-face on a significant question of statutory con-

11 We do not understand petitioners independently to have chal-

lenged the Commission’s application of Jndiana Harbor II to the

facts of this case, except inosfar as the Commission’s retroactive

application of the rule works injustice to the parties to the ad-

judication, a question we address in Part IV.

12a

struction. See Chevron, 467 U.S. at 857-58. Under these

circumstances, however, the Commission bears the burden

of rationally explaining its departure from its previous

interpretation. See Motor Vehicle Mfrs. Ass’n v. State

Farm Mut. Auto. Ins. Co., 463 U.S. 29, 41-44 (1983);

see also Natural Resources Defense Council v. EPA, 725

F.2d 761, 767 (D.C. Cir. 1984). We think the Commis-

sion has discharged this responsibility in /ndiana Har-

bor I.

The Commission thought it appropriate to reexamine

its empty-repair-move policy for two principal reasons.

First, it believed the /ndiana Harbor I rule, under which

railroads that participate in some measure in the line-

haul carriage of freight were forced to bear collective re-

sponsibility for the costs of empty-repair moves, resulted

in an inequitable allocation of such costs among the par-

ticipating carriers, see Indiana Harbor II, 3 1.C.C.2d at

604, and in the inefficient placement of empty-repair

transportation costs on parties who did not select the

repair depot. See id. at 611, 616. Integral to its conclu-

sion about unfair intercarrier allocation was the Com-

mission’s disenchantment with its so-called “equalization

rule” * as a means to mitigate cross-subsidization among

12 The equalization rule in effect at the time of the decision in

Indiana Harbor II required car providers whose cars accumulated

empty mileage in excess of 106% of loaded revenue mileage to pay

a tariff on such excess mileage to a common pool administered

by a carrier association. The association, in turn, distributed ac-

cumulated revenues to individual carriers in accordance with each

carrier’s excess empty mileage burden. The 106% figure was de-

signed to account for both empty-return mileage (100% of revenue

mileage) and reasonable empty-repair mileage (an additional 6%

of revenue mileage).

We note that petitioners’ theory—under which all costs of empty-

repair moves are presumptively the collective responsibility of car-

riers—is somewhat inconsistent even with the equalization rule,

under which at least a portion of these costs may be borne by car

providers if their cars accrue excess non-revenue mileage.

13a

railroads. See id. at 605-06. Second, the Commission

observed that the legislative environment in which the

empty-repair-move rule was announced in Union Tank

and affirmed in /ndiana Harbor I—had shifted from ac-

ceptance of notions of collective railroad responsibility

and cross-subsidization among carriers to congressional

disapproval of those same ideas. See id. at 607, 610-11.

By the time it decided Jndiana Harbor II, the Commis-

sion believed it was acting against a background of con-

gressional desire for greater efficiency in the manage-

ment of the nation’s rail transportation system through

increased reliance on market forces.

The record, it seems to us, adequately buttresses these

conclusions. Evidence showed that the prior rule, which

prohibited empty-repair charges if the carrier derived

greater than de minimus revenues from the line-haul

movement of freight, placed unfair burdens on certain

carriers. And despite the expectations it expressed in

Indiana Harbor I, see Indiana Harbor I, 357 I.C.C. at

125, the Commission was presented with abundant indi-

cations that the equalization rule was fundamentally in-

effective in leveling the differential burdens imposed by

its empty-repair charge scheme. Because the rule was

designed primarily to address provider responsibility for

excess non-revenue mileage, and as “there [was] no nec-

essary relationship between each carrier’s share of repair

move responsibility in terms of loaded revenue miles and

its participation‘in repair move operations,” use of the

equalization accounts could not be expected to prevent

railroad cross-subsidization. Jd. at 606 (emphasis added).

The Commission cited the experience of one of the /ndi-

ana Harbor Il carrier-parties to illustrate its point:

between 1978 and 1982 the IHB had performed empty-

repair switching services which, if charges had been al-

lowed, would have earned the carrier $856,452. Yet the

IHB recovered on!v $96,263 under the equalization rule

for the services in question. See 3 I.C.C.2d at 604. Per-

l4a

mitting carriers to charge for empty-repair moves, the

Commission thought, would resolve the intercarrier-

allocation problem without doing violence to the prin-

ciple of carrier responsibility for the costs of owning

railroad cars, for car providers could simply combine the

costs of empty-repair moves with other costs of owner-

ship in charging the railroads mileage allowances."* Jn-

diana Harbor II was described by the Commission as, in

large measure, a change in the “methods of accounting

for the repair cost element of private car owners’ ex-

penses.” 3 I.C.C.2d at 10.

Recent rail transportation legislation supports the

Commission’s judgment that Congress intended the In-

terstate Commerce Act to be administered with an eye

toward eliminating inefficient ratemaking practices. The

Commission cited various provisions in the 4R and Stag-

gers Acts, not as reflective of Congress’ specific intent on

the question, but rather as indicative of the tension be-

tween Indiana Harbor I’s collective-responsibility ration-

ale and general congressional purposes. We think the

Commission permissibly discerned an emerging congres-

sional purpose to permit carriers to price their services

efficiently in accordance with both the costs properly

chargeable to such services and market forces in order

to “provide all carriers with a realistic opportunity to

earn adequate revenues.” 3 I.C.C.2d at 611 (emphasis

added). The Commission relied on language in sec-

18The Commission concluded as well that allowing carriers

initially to impose charges for empty-repair moves would place

the costs of such moves on the parties selecting the repair depots

—the car providers—and thus promote more efficient depot selec-

tions by forcing providers to consider transportation as well as

repair costs. See 3 I.C.C.2d at 611. Petitioners insist that the

106%, equalization rule already encourages car providers to desig-

nate the “cloest suitable repair shop” by penalizing providers if

their cars accrue excess non-revenue miles. The Commission rea-

sonably believed, however, that Jndiana Harber II would bring

about efficiency gains in repair depot selections vis-a-vis the prior

regime by enabling car providers to account more precisely for

the transportation costs associated with the choice of a particular

repair shop.

EEE 7

15a

tion 101(a) of the Staggers Act stating that “it is

the policy of the United States Government [] 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. §1010la(1) (1982),

to “promote a safe and efficient rail transportation

system by allowing rail carriers to earn adequate rev-

enues,” id. §1010la(3), and “to encourage .. . effi-

cient management of railroads and . . . the elimination

of noncompensatory rates.” Jd. §1010la(10). The

Commission found further support for this notion in stat-

utory provisions that appear to disapprove of rates that

“do not contribute to going concern value” and “encour-

age[] cross-subsidization.” 3 I.C.C.2d at 611; see 49

U.S.C, § 10701la(b) (3) (“the Commission shall recog-

nize the policy of this [Act] that rail carriers shall earn

adequate revenues”); id. §1070la(c) (“[a]ny rate for

transportation . . . that does not contribute to the going

concern value of [the] carrier is presumed to be not

reasonable”); id. § 10704(a) (2) (Commission shall en-

able carriers to earn adequate revenues); id. § 10707a

{e) (2) (Commission shall consider the extent to which

rates which do not contribute to going concern value can

be changed).

Of course, these provisions do not compel the approach

adopted by the Commission in Jndiana Harbor II. None

of the provisions is specifically directed to relations be-

tween carriers and car providers. Taken together,

though, the passages support the reasonableness of the

Commission’s construction of the Act. Congress’ objec-

tive of an efficient railroad rate structure, and its attend-

ant goal of ensuring that individual carriers have the

opportunity to earn adequate revenues, at minimum runs

counter to Indiana Harbor I’s premise of collective re-

sponsibility. We think, then, that the Commission has

tendered a facially adequate explanation for reversing its

course by demonstrating how the factual and legal pred-

16a

icates that underlay Indiana Harbor I were either mis-

conceived originally or have since substantially eroded.

Petitioners and intervenor LOSAC nevertheless attack

the internal logic and consistency of the Commission’s

reasoning. LOSAC argues that the premises of the Com-

mission’s “accounting change” and “revenue adequacy”

explanations of Indian Harbor II are fundamentally in-

consistent; the former implicitly assumes that as between

railroads and car providers generally, Indiana Harbor II

will be revenue-neutral, while the latter—focused on in-

creased revenues for railroads—explicitly assumes other-

wise. LOSAC misapprehends the Commission’s justifica-

tion, however. The ICC’s concerns over “revenue ade-

quacy,” driven in large part by changes in congressional

policy (evidenced in the Staggers Act) had little to do

with carriers generally, as LOSAC assumes; rather, the

Commission was concerned with the distributive inequity

of saddling certain carriers with a disproportionate share

of the empty-repair-move burden. 3 I.C.C.2d at 604.

Characterized property, the Commission’s “revenue ade-

quacy” and “accounting change” explanations are com-

plementary, not antagonistic.

Still, LOSAC charges that the Commission’s “account-

ing change” justification by itself does not withstand

scrutiny. It is argued that Indiana Harbor II is a good

deal more than a simple change in accounting methods;

granting railroads permission to charge “initially” for

empty-repair moves will enable carriers to shift these

costs (or at least some of them) to car providers, in vio-

lation of the Act’s implicit discretion that railroads bear

the costs of owning railcars used in fulfillment of their

common-carrier obligations. See, e.g., 49 U.S.C. § 11121

(a) (1982) (providing that rail carriers “shall furnish

safe and adequate car service’) ; Pennsylvania R.R. Co. v.

Puritan Coal Mining Co., 237 U.S. 121 (1915) (same).

Car providers, according to LOSAC, are not assured that

they will, in turn, be able to pass the costs of empty-

iene

17a

repair moves back through to carriers through mileage

allowance charges, contract offsets, or otherwise. This is

so because in recent years carriers have proved reluctant

to update allowances in accordance with increases in costs

of ownership, and have imposed arbitrary “caps” on mile-

age formulas. Under the ICC’s recent decision in LO

Shippers Action Comm. v. Aberdeen & Rockfish R.R. Co.,

4 1.C.C.2d 1 (1987), aff'd sub nom. LO Shippers Action

Comm. v. ICC, 857 F.2d 802 (D.C. Cir. 1988), moreover,

railroads have no obligation under the Interstate Com-

merce Act to reimburse car providers, through allow-

ances, for their complete cost of ownership. Instead, the

statute permits the Commission, in exercising its discre-

tionary power to regulate car allowances, to look beyond

historical costs to car providers to such factors as condi-

tions in the railear market. See 49 U.S.C. § 11122(b)

(1982) (“In determining the rate of compensation [to

car providers], the Commission shall consider . . . the

national level of ownership of each type of freight car,

and other factors that affect the adequacy of the national

freight car supply.”); LO Shippers Action Comm., 4

I.C.C.2d at 10. LOSAC therefore contends that it was

flatly wrong for the Commission to assume that empty-

repair-move costs would continue to be borne by carriers.

To be sure, the Commission may have been a bit facile

in its initial opinion in suggesting that its decision in-

volved only an accounting change that would have little or

no impact in determining who—as between carriers and

car providers—would bear the burden of the costs in-

volved. In its order on rehearing, however, the Commis-

sion conceded that car providers may be unable to recoup

completely the costs of empty-repair moves from rail-

roads, just as conditions in the railroad market might

prevent providers from recovering on a dollar-for-dollar

basis their other costs of ownership. And the Commission

reiterated, in any event, that the statute simply does not

guarantee providers full cost recovery.

Wier

18a

We see nothing irrational in the Commission’s ap-

proach, as clarified on rehearing, toward accounting for

empty-repair move costs. It is quite incorrect to assume,

as petitioners do, that the Interstate Commerce Act re-

quires the Commission to treat empty-repair-move costs

differently than other costs of owership. As the Com-

mission observed, it would be anomalous to segregate the

empty-repair-move component of ownership costs for sep-

arate treatment:

The railroads’ obligation to compensate car owners

for costs of ownership still exists, but the most

plausible statutory basis for discharging that obliga-

tion within the regulatory framework of published

rates is section 11122, which governs private car

compensation generally.

Order on Reconsideration at 2. Private car providers

have no statutory right to insulate themselves from mar-

ket forces generally in fixing allowances to be paid by

carriers for the use of railcars. It follows that providers

have no right to sequester the empty-repair-move com-

ponent of ownership costs from market forces either. As

the Commission stated in LO Shippers Action Comm.,

“allowing market based car hire returns, instead of pre-

scribing fixed returns, best accommodates the various fac-

tors [the Commission is] required by [section 11122 of

thhe Act] to consider.” 4 I.C.C.2d at 14. It seems rea-

sonable, we think, for the Commission to conclude that

what is appropriate for ownership costs generally is per-

fectly appropriate for the discrete ownership costs at

issue in this case.

The foregoing analysis, in our opinion, fairly disposes

of petitioners’ related charge that it was irrational for

the Commission to attempt to solve a problem of inter-

carrier cost allocation with the solution of an eztra-

carrier (car provider) charge. The argument assumes,

in the first instance, that an extracarrier charge for

empty-repair moves is otherwise illegitimate under the

19a

Act, an assumption that the Commission has adequately

rebutted. The Commission made clear, moreover, that it

was the anomaly of treating empty-repair-move costs

differently than other costs of ownership (as a collective

responsibility of the railroad industry rather than a cost

to be borne in direct proportion to a carrier’s use of pri-

vate railcars in the line-haul carriage of freight) that

produced the problem of intercarrier cost misallocation.

Petitioners’ argument, it seems to us, runs aground on

section 11122 of the Act, which plainly contemplates initial

railroad charges for freight movements with a “pass-

back” of ownership costs to carriers through allowances.'*

Petitioners also contend that the Commission failed to

pay heed to numerous legally relevant considerations in

fashioning its empty-repair-move policy in Jndiana Har-

bor Ii. It is argued that, prior to reversing Indiana

Harbor I and allowing carriers to charge for empty-

repair moves, the ICC should have undertaken an exami-

nation of the techniques by which car providers would be

able to recoup empty-repair-move costs from railroads.

In other words, because the Commission rested its deci-

14 Petitioners’ assertion that the railroads’ imposition of empty-

repair tariffs constitutes “double-charging” for empty moves in

violation of sections 10701(a) (prohibiting unreasonable practices)

and 11121(a) (prohibiting unreasonable “er service practices) of

the Act is hyperbole. It is by no means iecessarily true that the

railroads will be able to “double-charge” for empty-repair moves

under Indiana Harbor II. Rail tariffs are influenced by a number

of factors of which the cost of railcar ownership is only one;

depending on conditions in the relatively discrete freight trans-

portation and railcar markets, railroads may over- or underrecover

from shippers the costs of railcar ownership passed through to

them by car providers. The Commission, in all cases, remains em-

powered to respond to specific practices in connection with railroad

payment of allowances under section 11121(a). In the order under

review, in fact, the Commission reserved such issues as the legiti-

macy of mileage allowance caps and the like for future proceedings

on a case-by-case basis. See Indiana Harbor II, 3 1.C.C.2d at 615.

20a

sion in part on the assumption that car providers could

use mileage allowance systems and other measures to re-

cover empty-repair-move costs, the Commission was ob-

liged in the same proceeding to engage in full-scale scru-

tiny of those recovery systems."®

We disagree. We are persuaded that the Commission

need not have undertaken the elaborate inquiry into mile-

age allowances requested by petitioners in the Indiana

Harbor II proceeding. Petitioners do not complain of any

regulatory obstacle to recovery of empty-repair-move

costs from carriers, a concern that might warrant im-

mediate Commission attention. Instead, the car providers

cite market forces alone as impeding full recovery. But

the Commission has recently decided to allow market

forces to influence rates of compensation to car providers,

see LO Shippers Action Comm., 4 I.C.C.2d at 18-14, and

we see no reason why the Commission should be pre-

vented from giving the market some opportunity to as-

similate repair-move costs before entertaining a chal-

lenge to the adequacy of mileage allowances under sec-

tion 11122.

The Commission reasonably determined, moreover, that

at least some of the mileage-allowance recovery issues

raised by petitioners, such as the propriety of railroad

mileage caps, involve the effectiveness of allowances in

enabling car providers to recover costs of ownership gen-

erally, and do not bear directly or exclusively on repair-

move costs. And, the Commission observed that it was

presently entertaining caps and ailowance questions in

other proceedings. Petitioners fail to show why their

rights under section 11122 would not be protected in a

separate adjudication. We have no legitimate grounds,

under these circumstances, to quarrel with the Commis-

15To the extent petitioners’ argument stems from the notion

that the Interstate Cuinmerce Act requires dollar-for-dollar re-

covery of the car providers’ complete costs of ownership, we have

adequately addressed it above. See supra p. 18.

2la

sion’s procedural determination concerning the limited

scope of the Indiana Harbor II proceeding. “[A]gencies

. need not deal in one fell swoop with the entire

breadth of a novel development; instead, ‘reform may

address itself to the phase of the problem which seems

most acute to the [regulatory] mind.’” National Ass’n

of Broadcasters v. FCC, 740 F.2d 1190, 1207 (D.C. Cir.

1984) (quoting Williamson v. Lee Optical Co., 348 U.S.

483, 489 (1955) ).

Petitioners also assert that the Commission arbitrarily

neglected to consider those long-term contractual rela-

tionships between railroads, car providers, and shippers

which were negotiated in reliance on Indiana Harbor I.

We are told that many car manufacturers lease railcars

to shippers who, in turn, “provide” the cars to railroads

for the transportation of freight. Under typical agree-

ments, the manufacturer-owner receives a flat-rate lease

payment from the lessee while the lessee pockets any mil-

age allowances paid by railroads;’* no mention is made

in these agreements of empty-repair-move charges, be-

cause Indiana Harbor I severely restricted the circum-

stances under which such charges could be assessed by

carriers. Superimposing Jndiana Harbor II’s regime on

these arrangements, it is asserted, will require manufac-

turer-owners to remit empty-repair-move charges to the

railroads without any means of recovering these pay-

ments from the car lessees. Similarly, petitioners contend

that shippers who have negotiated long-term contract

rates with carriers, see 49 U.S.C. § 10713 (1982) (pro-

viding authority for, and regulating, contract rates for

rail transportation in lieu of published tariffs), which

rates presumably incorporate an offset amount reflecting ~

the shippers’ cost of providing railcars but do not cur-

16 While mileage allowances, under prevailing practices, are tend-

ered by railroads to manufacturer-owners, petitioners assert that

the typical lease agreement requires the owner to credit these

allowances to the lessee.

22a

rently account for the possibility of shipper-borne empty-

repair charges, will be harmed by Indiana Harbor I].

The gist of petitioners’ objection, it seem to us, is that

the Commission’s previous policy induced railroads, car

providers, and shippers to do business one way, and that

these settled business practices cannot be overridden by

developments in the Commission’s regulatory policies no

matter how compelling the statutory justifications. This

argument assumes incorrectly, we think, that industry

practices may prevent the Commission from implement-

ing even a justified and well-explained departure from

previous policy. That is simply not sound administrative

law. See Norman v. Baltimore & Ohio R.R. Co., 294 U.S.

240, 307-08 (1935) (“when contracts deal with a sub-

ject matter which lies within the control of the Con-

gress, they have a congenital infirmity”); New England

Tel. & Tel. Co. v. FCC, 826 F.26 1101, 1110 (D.C. Cir.

1987) ; see also J.J. Case Co. v. NLRB, 321 U.S. 332, 337

(1944).

Petitioners’ last objection to the reasonableness of the

Commission’s decision is that the ICC neglected to de-

vote sufficient attention to numerous alternative inter-

carrier schemes—not requiring the reversal of Jndiana

Harbor I—that allegedly would cure intercarrier cost

allocation problems. The Commission failed, we are told,

to discuss the option of “intercarrier pooling,” under

which railroads would pool a percentage of their line-

haul freight revenues for distribution among carriers in

proportion to their repair-movement burden. Other op-

tions, such as intercarrier litigation over “excess” line-

haul receipts and more adequate parent contributions of

a portion of their line-haul freight revenues to their

switching subsidiaries, were allegedly dispensed with by

the Commission without adequate consideration or ex-

planation. This “ ‘artificial narrowing of options,’” ac-

cording to petitioners, cannot be countenanced. IJnter-

national Ladies Garment Workers Union v. Donovan,

722 F.2d 795, 817 (D.C. Cir. 1983) (quoting Pillai v.

Civil Aeronautics Board, 485 F.2d 1018, 1027 (D.C. Cir.

23a

19738)); see State Farm Mut. Auto. Ins. Co., 463 U.S.

at 46-48.

This is not a case, however, where the Commission

labored under a misperception that the policy ultimately

selected was “the only available alternative.” Pillai, 485

F.2d at 1027. The record reveals that the Commission

deliberated upon all three “alternatives” advanced by pe-

tioners prior to settling on the option of allowing empty-

repair move charges. See Indiana Harbor II, 3 I1.C.C.2d

at 611-13. The “intercarrier litigation” alternative was

reasonably viewed as “complex, costly, and impractical”

given the extreme difficulty of determining the extent to

which a particular “overcompensated” carrier has been

enriched at the expense of a complaining switching car-

rier. Jd. at 612-13. The “parent-subsidiary contribution”

alternative, while it might redress imbalances between

certain discrete carriers, was also viewed as ill-suited to

the resolution of an industry-wide problem because not

all undercompensated switching carriers are owned by

overcompensated line-haul carriers. 7d. at 612. Finally,

the record was deemed inconclusive on the question of the

viability of intercarrier pooling of line-haul freight reve-

nues; “little was said by the parties about it’? even

though the alternative was identified by the Commission

in soliciting public comments. Jd. at 613. The Commis-

sion reasonably believed, nevertheless, that permitting

carriers to charge for repair moves was simpler than

“establish[ing] a second elaborate system of allocating

repair-movement responsibility among individual -car-

riers,” as “systems are already in place for handling

other private car repair and car supply costs.” Jd. at

614.17 No further consideration of the alternatives

17The Association of American Railroads argues that the ICC

has no authority to direct carriers to contribute to an intercarrier

pool. See 49 U.S.C. § 113842 (1982). Since the Commission did

not embrace this view, however, we cannot consider the point in

testing the Commission’s consideration of available alternatives.

24a

proffered by the car providers, in our view, was legally

required.

We conclude, therefore, that the Commission’s empty-

repair-move policy is based both on a permissible con-

struction of the Interstate Commerce Act and on rea-

soned scrutiny of the legally relevant considerations. The

only question that remains is whether or not the Com-

mission could lawfully apply its new controlling principle

to the parties before it in Indiana Harbor II.

IV.

Petitioners advance two arguments against the law-

fulness of “retroactively” sanctioning the repair-move

charges filed by the IHB and the BOCT and challenged

by shippers in Indiana Harbor II. First, they character-

ize the Commission’s action in Indiana Harbor II as a

rule, which, under the Administrative Procedure Act,

may be given prospective effect only. Second, petitioners

argue that even if Indiana Harbor II is labeled an ad-

judication, retroactive application of the Commission’s

new empty-repair-move policy to the parties in this case

violated fundamental principles of fairness. We find nei-

ther argument persuasive.

We need not dwell at length on petitioners’ assertion

that Indiana Harbor II was a retroactive rulemaking.

The former policy largely prohibiting empty-repair-move

charges was articulated in an adjudicatory proceeding,

and Indiana Harbor II itself was an adjudication. It

seems to us presumptively reasonable that a controlling

principle announced in one adjudication may be modified

in a subsequent adjudication, and petitioners offer little

to question that presumption here. As we have said be-

fore, “{a]djudicatory decisions do not harden into ‘rules’

which cannot be altered or reversed except by rulemaking

simply because they are longstanding.” See Chisholm v.

FCC, 538 F.2d 349, 365 (D.C. Cir. 1976). Petitioners

conceded at argument that, in selecting a controlling

25a

principle to govern the dispute before fre Commission in-

Indiana Harber II, the Commission was at the very least

empowered to apply that principle in the future to simi-

larly situated parties. Indeed, basic tenets of administra-

tive law require the Commission to apply its rules con-

sistently in adjudicatory proceedings. See generally

Atchison, T. & S.F. Ry. Co. v. Wichita Bd. of Trade, 412

U.S. 800, 807-09 (1973). That Indiana Harbor II estab-

lished an adjudicatory policy to be applied in the future.

as well as to the parties before the Commission, is thus of

no moment.

Petitioners point to the Commission’s requests for pub-

lic comments under 5 U.S.C. § 553 and contend that that

procedure somehow “converted” Indiana Harbor II into

an informal rulemaking, sce 50 Fed. Reg. 10.867 (1985) :

49 Fed. Reg. 39,740 (1984), thereby rendering retroac-

tive application of the empty-repair-move policy unlaw-

ful. Yet petitioners cite no authority for their theory that

an adjudication is converted into a rulemaking solely be-

cause an agency solicits and entertains the comments of

those who have an interest in prospective application of

the principle under study, and we have found none. Cer-

tainly, the practice of permitting amicus filings in judi-

cial proceedings has never been thought a basis for equat-

ing judicial decisions with legislation. So’ we reject peti-

tioners’ novel contention.

Relying on our opinion in Retail, Wholesale and Depart-

ment Store Union v. NLRB, 466 F.2d 380 (D.C. Cir.

1972), petitioners argue in the alternative that even if

Indiana Harbor II is regarded as an adjudication, retro-

active application of the new empty-repair policy is con-

trary to law. Petitioners purport to apply the five-factor

balancing test * set forth in Retail, Wholesale and insist

18 Among the considerations that enter into a resolution of the

[retroactivity] problem are (1) whether the particular case is

one of first impression, (2) whether the new rule represents an

26a

that the statutory interest in applying the new rule to

the parties’ dispute in Jndiana Harbor II is outweighed

by the inequity involved in disappointing the car provid-

ers’ reasonable expectations in reliance on longstanding

Commission precedent. Of course, as the Supreme Court

has observed, every administrative case in which a new

or modified controlling principle is announced “has a

retroactive effect,” and such retroactivity is “not neces-

sarily fatal to its validity.” SEC v. Chenery Corp., 332

U.S. 194, 208 (1947). And because the Administrative

Procedure Act does not countenance agency use of ad-

judicatory powers to announce rules of prospective effect

only, see NLRB v. Wyman-Gordon Co., 394 U.S. 759,

765-66 (1969) (opinion of Fortas, J.); id. at 777 (dis-

senting opinion of Douglas, J.); id. at 780 (dissenting

opinion of Harlan, J.), it seems clear that the circum-

stances in which a rule may be announced but not ap-

plied in an adjudication are few. In part for this reason,

courts have interpreted the Retail, Wholesale test to bar

retroactive application of a new rule only when such ap-

plication would work a “manifest injustice.” Clark-

Cowlitz Oper. Agency v. FERC, 826 F.2d 1074, 1081

(D.C. Cir. 1987) (en banc).

We do not find the parties’ reliance interest in the

Indiana Harbor I regime to be so great as to warrant

the conclusion that retroactive application of the Jndiana

Harbor II empty-repair policy works a “manifest in-

justice.” Soon after the IHB and the BOCT filed their

empty-repair tariffs but prior to their effective date, the

abrupt departure from well established practice or merely at-

tempts to fill a void in an unsettled area of law, (3) the extent

to which the party against whom the new rule is applied relied

on the former rule, (4) the degree of the burden which a retro-

active order imposes on a party, and (5) the statutory interest

in applying a new rule despite the reliance of a party on the

old standard.

Retail, Wholesale, 466 F.2d at 390.

27a

parties sought ICC suspension of the tariffs as unlawful,

see 49 U.S.C. § 10707 (1982) (providing Commission

suspension authority); Southern Ry. Co. v. ICC, 681

F.2d 29 (1982) (describing suspension power), yet the

ICC declined to exercise its interim authority. If this

action alone did not suggest to petitioners that Jndiana

Harbor I was being drawn into question, the Commis-

sion’s 1984 order staying the Review Board’s decision

that struck down the tariffs removed all doubt about the

Commission’s inclination. In that order the Commission

indicated that the railroads had a “substantial” chance

of prevailing in defense of their empty-repair-move tar-

iffs. Thus, for most of the period for which petitioners

claim retroactive application of Indiana Harbor II is un-

fair, petitioners have been aware of Jndiana Harbor I’s

vulnerability. The parties’ reliance interest in Indiana

Harbor I must be discounted accordingly.

Turning to the other side of the equation, we (like the

Commission) think the statutory interest in having /n-

diana Harbor II apply retroactively is significant in this

ease. The record before the Commission provided abun-

dant support for its conclusion that the IHB and the

BOCT were receiving insufficient compensation through

line-haul freight traffic for their handling of empty-repair

movements, a predicament in tension with the Staggers

Act’s objective of providing carriers an opportunity to

earn adequate revenues. Under the circumstances, we

believe it was perfectly appropriate for the Commission

“to apply the law in effect at the time it render[ed] its

decision.” Bradley v. Richmond School Bd., 416 U.S. 696,

711 (1974).

For the reasons stated, the petitions for review are

Denied.

28a

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 87-1125

GENERAL AMERICAN TRANSPORTATION CORPORATION, et al.,

Petitioners

Vv.

INTERSTATE COMMERCE COMMISSION AND

UNITED STATES OF AMERICA,

Respondents

Lo SHIPPERS ACTION COMMITTEE,

BALTIMORE AND OHIO CHICAGO TERMINAL RAILROAD Co.,

U.S. CLAY PRODUCERS TRAFFIC ASSOCIATION, INC.,

ASSOCIATION OF AMERICAN RAILROADS,

CHEMICAL MANUFACTURERS ASSOCIATION,

Intervenors

and Consolidated Cases No. 87-1171 and 88-1284

Petitions for Review of an Order of the

Interstate Commerce Commission

Before: SILBERMAN, WILLIAMS and SENTELLE, Circuit

Judges.

JUDGMENT

[Filed April 14, 1989]

These causes came on to be heard on the petitions for

review of an order of the Interstate Commerce Commis-

sion and were argued by counsel. On consideration

thereof, it is

29a

ORDERED and ADJUDGED, by the Court, that the

petitions for review are denied, in accordance with the

Opinion for the Court filed herein this date.

Per Curiam

For THE COURT:

/s/ Wendy Jenuis

for CONSTANCE L. DUPRE

Clerk

Date: April 14, 1989

Opinion for the Court filed by Circuit Judge Silberman.

30a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Filed June 30, 1989

No. 87-1125

GENERAL AMERICAN TRANSPORTATION CORPORATION, et al.,

“ Petitioners

INTERSTATE COMMERCE COMMISSION

UNITED STATES OF AMERICA,

Respondents

Lo SHIPPERS ACTION COMMITTEE,

BALTIMORE AND OHIO CHICAGO TERMINAL RAILROAD Co.,

U.S. CLAY PRODUCERS TRAFFIC ASSOCIATION, INC.,

ASSOCIATION OF AMERICAN RAILROADS,

CHEMICAL MANUFACTURERS ASSOCIATION,

Intervenors

No. 87-1171

RAILWAY PROGRESS INSTITUTE COMMITTEE ON TANK CARS,

‘ Petitioners

INTERSTATE COMMERCE COMMISSION AND

UNITED STATES OF AMERICA,

Respondents

ASSOCIATION OF AMERICAN RAILROADS,

BALTIMORE AND OHIO CHICAGO TERMINAL

RAILROAD Co., et al.,

CHEMICAL MANUFACTURERS ASSOCIATION,

MBF INDUSTRIES, INC.,

Intervenors

3la

No. 88-1284

RAILWAY PROGRESS INSTITUTE COMMITTEE ON

TANK CARS, et al.,

Petitioners

INTERSTATE COMMERCE COMMISSION AND

UNITED STATES OF AMERICA,

Respondents

ASSOCIATION OF AMERICAN RAILROADS,

BALTIMORE AND OHIO CHICAGO TERMINAL

RAILROAD Co., et al.,

Intervenors

On Petition for Rehearing of Petitioners

and Intervenors

Before SILBERMAN, WILLIAMS and SENTELLE, Circuit

Judges.

ORDER

Upon consideration of the petition for rehearing of

petitioners and intervenors, filed May 26, 1989, it is

i ORDERED, by the Court, that the petition is denied.

Per Curiam

FOR THE COURT:

CONSTANCE L. DUPRE

Clerk

A statement of Circuit Judge Silberman is attached.

32a

SILBERMAN, Circuit Judge, joined by WILLIAMS and

SENTELLE, Circuit Judges, concurring in the denial of

rehearing.

Petitioners’ primary claim in its petition for rehearing

is that Indiana Harbor II was a rulemaking, unsuitable

for retroactive application, because the Interstate Com-

merce Commission determined to seek industry comment

on the issues framed by the parties to the adjudication.

We rejected petitioners’ argument, however, that the mere

supplementation of an adjudicatory proceeding with com-

ment procedures more commonly employed in a rulemak-

ing necessarily means that the resulting procedure is rule-

making per se. Nothing in the Administrative Procedure

Act restrains an agency from receiving (and crediting)

comments in adjudicatory proceedings from nonparties

who will inevitably be affected by the agency’s contem-

plated change-in-course, whether through intervention or

otherwise. See Robinson, The Making of Administrative

Policy: Another Look at Rulemaking and Adjudication

and Administrative Procedure Reform, 118 U. Pa. L.

REv. 485, 536 (1970) (“the prescription of an adjudica-

tory hearing does not preclude an agency from allowing

widespread industry and public participation through in-

tervention and preservation of testimony in written af-

fidavits”) ; Shapiro, The Choice of Rulemaking or Adju-

dication in the Development of Administrative Policy,

78 Harv. L. REv. 921, 931 (1965) (“even in the course

of adjudicatory proceedings, agencies are not powerless

to permit general comment on proposed rules if they wish

to do so’”’).!' Indeed, the courts and commentators that

have suggested the inappropriateness of adjudicatory

proceedings for certain matters have focused their atten-

tion on the unfairness of declining to give nonparties

1The National Labor Relations Board appears to have followed

this course in many of its adjudicatory proceedings. See, e.g., Gen-

eral Cable Corp., 139 N.L.R.B. 1123 (1962); Deluxe Metal Furni-

ture Co., 121 N.L.R.B. 995 (1958).

33a

notice and an opportunity to be heard in advance of the

agency’s selection of a new or altered governing princi-

ple. See, e.g., Bell Aerospace Co. v. NLRB, 475 F.2d 485,

494-97 (2d Cir. 1973), rev’d, 416 U.S. 267 (1974); 2 K.

DAvis, ADMIN. L. TREATISE 96 125-26 (1979); cf. NLRB

v. Wyman-Gordon Co., 394 U.S. 759, 764 (opinion of

Fortas, J.); id. at 777-79 (opinion of Douglas, J.) ; id.

at 780-81 (opinion of Harlan, J.). I think Indiana Har-

bor II, which was begun as an adjudication by certain

of the petitioners with the filing of a complaint against

the railroads for their assessment of empty-repair-move

charges, retained its fundamental adjudicatory character

throughout.’

Underlying petitioners’ argument that /ndiana Harbor

II was a rulemaking, it would appear, is the notion that

an adjudicatory proceeding was an inappropriate forum

for the Commission to have made a “legislative-type”

judgment reversing its longstarding empty-repair-move

policy. But the Supreme Court has repeatedly emphasized

that the choice between rulemaking and adjudication

“lies primarily in the informed discretion of the admin-

istrative agency.” SEC v. Chenery Corp., 332 U.S. 194,

203 (1947). And when the Second Circuit Court of Ap-

2 It is unproductive, in most circumstances, to attempt to “classify

a given proceeding as either adjudicatory or rulemaking. The line

between the two is frequently a thin one and resolution of a given

problem will rarely turn wholly on whether the proceeding is placed

in one category or the other.” City of Chicago v. FPC, 458 F.2d

731, 739 (D.C. Cir. 1971), cert. denied, 405 U.S. 1074 (1972). But

see Hoffman-LaRoche, Inc. v. Kleindienst, 478 F.2d 1, 12-13 (3d

Cir. 1973) (character of proceeding—whether adjudicatory or

rulemaking—viewed critical given agency’s failure to follow func-

tional separation requirements of 5 U.S.C. § 554). Here, of course,

the characterization of the proceeding below is important, for it

bears directly on the propriety of retroactive application of the new

governing principle. “[R]etroactivity is not only permissible but

standard” in the adiudicatory setting, Bowen v. Georgetown Univ.

Hosp., 109 S. Ct. 468, 478 (1988) (Scalia, J., concurring), but it is

disfavored in rulemaking. See id. at 471.

34a

peals, in reliance on reasoning virtually identical to that

subscribed to by petitioners, determined that a significant

reversal in NLRB policy could not, under the circum-

stances, be effected through adjudication, the Supreme

Court unanimously reversed, holding that the Board was

“not precluded from announcing new principles in an

adjudicative proceeding.” NLRB v. Bell Aerospace Co.,

416 U.S. 267, 294 (1974) (reversing Bell Aerospace Co.

v. NLRB, 475 F.2d 485 (2d Cir. 1973)). While argu-

ments no doubt can be advanced in support of limiting

agencies’ policymaking use of the adjudicatory form to

circumstances where “legal consequences hinge upon the

interpretation of statutory requirements, and where no

pre-existing interpretive rule construing those require-

ments is in effect,” Georgetown Univ. Hosp., 109 S. Ct.

at 480 (Scalia, J., concurring) ; compare Ford Motor Co.

v. FTC, 673 F.2d 1008, 1009-10 (9th Cir. 1981), cert.

denied, 459 U.S. 999 (1982), with id. at 1011-12 (Rein-

hardt, J., disenting from denial of rehearing en banc),

the law of this circuit is emphatically to the contrary.

See, e.g., Airmark Corp. v. FAA, 758 F.2d 685, 691-92

(D.C. Cir. 1985); Hatch v. FERC, 654 F.2d 825, 837

(D.C. Cir. 1981); Florida Power & Light Co. v. FERC,

617 F.2d 809, 816 (D.C. Cir. 1980); Office of Commu-

nications of United Church of Christ v. FCC, 590 F.2d

1062, 1070 (D.C. Cir. 1978) ; Chisholm v. FCC, 538 F.2d

349, 365 (D.C. Cir.), cert. denied, 429 U.S. 890 (1976) ;

but cf. American Fed’n of Gov’t Employees v. FLRA,

777 F.2d 751, 759 (D.C. Cir. 1985) (suggesting that rule

established by rulemaking procedures can be modified or

altered only by rulemaking procedures). What this case

really reduces to is the fairness of retroactive application

of the new principle developed in Indiana Harbor II to

the adjudicatory parties, a question I believe is adequately

addressed in the original panel opinion.

35a

APPENDIX D

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 87-1125

GENERAL AMERICAN TRANSPORTATION

CORPORATION, et al.,

Petitioners

INTERSTATE COMMERCE COMMISSION and

UNITED STATES OF AMERICA,

Respondents

Lo SHIPPERS ACTION COMMITTEE, et al.,

Intervenors

And consolidated cases No. 87-1171 and 88-1284

Before: WALD, Chief Judge; ROBINSON, MIKvA, ED-

WARDS, RUTH B. GINSBURG, SILBERMAN, BUCK-

LEY, WILLIAMS, D.H. GINSBURG and SENTELLE,

Circuit Judges

ORDER

[Filed June 30, 1989]

The suggestion for rehearing en banc of petitioners

and intervenors has been circulated to the full Court.

No member of the Court requested the taking of a vote

thereon. Upon consideration of the foregoing, it is

36a

ORDERED, by the Court en banc, that the suggestion

is denied.

For THE COURT:

CONSTANCE L. DUPRE

Clerk

By: /s/ Robert A. Bonner

ROBERT A. BONNER

Deputy Clerk

Chief Judge Wald and Circuit Judge Buckley did not

participate in this matter.

37a

APPENDIX E

ICC 132 Served March 12, 1987

INTERSTATE COMMERCE COMMISSION

No. 35404 *

GENERAL AMERICAN TRANSP. CORP.

INDIANA HARBOR BELT RAILROAD Co.

Decided February 17, 1987

Commission overrules Union Tank Car Co. Terminal

Service, 268 I.C.C. 338 and General American

Transp. Corp. v. Indiana Harbor, 357 I.C.C. 102,

and finds that rail carriers may charge for move-

ments of privately owned cars to and from private

facilities for ordinary maintenance and repair. Car

suppliers should recover those costs with other costs

of ownership through mileage allowances as market

conditions permit. Relief sought in No. 39380 de-

nied. Both proceedings discontinued.

DECISION

BY THE COMMISSION:

We are reversing the decision in General American

Transp. Corp. v. Indiana Harbor, 357 I.C.C. 102 (1977)?

1 This decision embraces No. 39380, General American Transp.

Corp. et al. v. Baltimore and Ohio Terminal Railroad Co., et al.

(No. 39380).

2 Aff’'d sub nom. Indiana Harbor R. Co. v. General Am. Transp.

: 577 F.2d 394 (7th Cir. 1978).

38a

(Indiana Harbor) and are allowing carriers to file tariffs

containing charges for hauling empty, privately owned

ears to and from repair facilities. We find that the ex-

isting policy prohibiting tariff charges misallocates eco-

nomic burdens among carriers and conflicts with the Con-

gressional mandate for demand-based rail pricing, rate

flexibility, and revenue adequacy expressed in the Rail-

road Revitalization and Regulatory Reform Act of 1976

(4R Act) and the Staggers Rail Act of 1980. These

charges are more properly considered a cost of repair to

be included in the computation of mileage allowances that

the railroads pay the shippers.

INTRODUCTION

Railroads have an obligation to provide cars necessary

to transport the commodities that they hold themselves out

to carry. Allied Corp. v. Union Pacific Railroad Company

1 L.C.C. 2d 480, 483 (1985). They may fulfill this obliga-

tion by furnishing their own cars or by using cars sup-

plied by other carriers or private parties. Sioux City

Term. Ry. Switching, 241 I.C.C. 53, 63 (1940).

Under 49 U.S.C. § 11122(b), “[t]he rate of compensa-

tion to be paid for each type of freight car shall be de-

termined by the expense of owning and maintaining that

type of freight car * * *” (Emphasis added.) The cost

of repair is a cost of car ownership and is factored

into the mileage allowance that the railroads pay to pri-

vate car owners to reimburse them for providing the

cars.*

Private car owners often perform maintenance and re-

pair work themselves or contract it out to private repair

firms. Association of American Railroads (AAR) proce-

3 Section 11122 also requires consideration of factors other than

ownership cost, such as efficiency of car use and the national level

of ownership, which may justify payment of allowances that do not

fully cover ownership cost when, for example, the supply of cars

exceeds the demand.

39a

dures state that carriers should route cars in need of re-

pair to repair shops designated by the car owner. How-

ever, carriers have not generally been permitted to charge

for those movements. Past Commission decisions hold

that, once private cars are put into service they are con-

sidered “instrumentalities of transportation” and their

movement for repairs is considered the collective respon-

sibility of the railroad industry. In Union Tank Car Co.

Terminal Service, 268 I.C.C. 338 (1947) (Union Tank),

the Commission concluded that such private cars were not

“property” within the meaning of then-section 6(7) of

the Act* and thus were not subject to charges because

they do not lose their status as instrumentalities of

transportation when taken out of service temporarily.

Indiana Harbor, supra, followed earlier Commission

precedents and found that a railroad could not levy a

direct charge for transporting privately owned cars (tank

and others) to and from repair facilities if it derived

more than de minimis revenue from loaded movements of

such cars. 357 I.C.C. 126-27. The decision held that a

railear moving to or from a repair facility could either

be considered the movement of “property” on which a

transportation charge could be imposted, or an instru-

mentality of transportation, where no charge could be

imposed for moving it. The decision explained that, for

a car to to be treated as an instrumentality of transporta-

tion, a carrier must derive some economic benefit, direct

or indirect, from its movement or use. Direct benefit was

found to occur when the carrier derived revenue from

the movement or use of the car. The Commission held

an indirect economic benefit occurred when a carrier

made use of private cars in general to fulfill its common

carrier obligations.

4 Former §6(7) stated, in essence, that except as otherwise pro-

vided, no carrier shall transport “passengers or property” unless its

charges are published in an effective tariff. Section 6(7) has been

recodified without substantive change in 49 U.S.C. § 10761 (a).

40a

In the Indiana Harbor decision, the Commission found

that the Indiana Harbor Belt Railroad (IHB) derived

more than a de minimis economic benefit from the use

of private cars, since it earned substantial revenue from

switching loaded movements of privately owned cars. The

decision further found that the tank car 105% equaliza-

tion rule® appeared to be a workable solution to the prob-

5 The mileage tariff for tank cars imposes an “equalization” rule

which is used to encourage private tank car owners to handle their

fleets more efficiently and reduce empty mileage. The 105% equali-

zation rule provided that, if aggregate empty mileage accumulated

annually by tank cars bearing the reporting mark(s) of any one

company or person exceed the aggregate loaded mileage by more

than 5%, then the assignee of the reporting mark(s) shall pay for

such excess empty mileage at a stated mileage charge. Certain

mileage was not included in the equalization accounting; namely:

(1) mileage on empty cars moving on revenue bills; (2) loaded or

empty mileage caused by railroad handling error; (3) repair move-

ments required because of railroad damage; and (4) mileage ac-

cumulated due to (a) use of longer routes for railroad convenience,

(b) detours, and (c) Commission service orders.

Carriers submit detailed monthly mileage reports to the assignee

of each reporting mark showing the actual loaded and empty

mileage for all cars bearing each reporting mark and send a dupli-

cate of that summary report to the AAR. Provisions are made for

adjusting errors.

Annually each carrier sends AAR a summary of total loaded and

empty mileage aggregated on its line during the calendar year,

separated by reporting marks. The AAR adds the loaded and the

empty mileage reported by all carriers for cars assigned to each

company or person, and if empty mileage exceeds loaded mileage by

more than 5% AAR sends a bill for the excess at the rule’s mileage

charge. It then distributes the charges thus collected to the carriers

in the proportion that each carrier’s portion of excess mileage bears

to the total excess empty mileage.

The current equalization rule is essentially the same. Under it

private tank car owners are assessed a current charge of 32¢ per

mile for all empty miles accumulated during a calendar year that

exceed total loaded mileage by more than 6%. The equalization

accounting now excludes excess mileage resulting from Department

of Transportation mandated retrofit programs and from an AAR

mandated care protection program. Also the current equalization

4la

lems of tank car under-compensation experienced by IHB

and other railroads due to their excessive empty nonrev-

enue mileage.® Consequently, it ordered IHB and other

undercompensated carriers to participate in the equaliza-

tion rule. The decision also recognized that § 15(18) of

the Interstate Commerce Act (the Act) (as amended by

§ 202(d) of the 4R Act) required the Commission to es-

tablish expeditious procedures for permitting publication

of separate rates for distinct rail services. However, the

decision concluded that, since repair movements are nec-

essary to the movement of freight in all revenue service,

switching for repairs could not be considered a distinct

rail service.

Subsequent to the Jndiana Harbor decision, the Com-

mission decided several cases in which separate charges

for private car repair moves were allowed, including one

in which a concurring opinion describes the Indiana

Harbor ruling as “bad law and bad policy” that should

ultimately be overturned because it results in harmful

cross subsidization and rate averaging.’ Also, in Indiana

Harbor the Commission did not fully consider the overall

rule now includes for accounting purposes mileage caused by rail-

road error, railroad damage, railroad convenience, detours, and

service orders.

The equalization rule does not apply to privately-owned covered

hoppers and other non-tank cars. Covered hoppers are subject to a

“back-to-back” rule, which currently provides that they are subject

to a mileage charge of 32¢ per mile for the second of any consecu-

tive empty line-haul movements.

® The Commission noted the need for an equalization rule or simi-

lar provision to spread the cost of empty repair movements for

private cars, other than tank cars. Until such rule or provision was

instituted, the Commission stated that IHB, if it accrued excess

empty mileage, could bring a complaint against those carriers which

it could identify as having received excess revenues and as being

responsible for IHB’s undercompensation.

7 No. 38792, Switching Charges for Privately Owned Cars Billed

to Repair Facilities (not printed), served October 18, 1982.

42a

impact and direction of the then-recent 4R Act. More-

over, the subsequently enacted Staggers Act made even

greater changes in the way railroads are regulated, in-

cluding pronounced policy shifts away from cross subsi-

dization and rate averaging.

Against that background, IHB decided in early 1983 to

publish separate charges for empty repair movements

not preceded or followed by a loaded revenue movement.

Shortly after that, The Baltimore and Ohio Chicago

Terminal Railroad Company (BOCT) did the same. Pri-

vate car owners ®* filed complaints challenging these ac-

tions in No. 39380.° The Administrative Law Judge

(ALJ) held for the defendants (IHB and BOCT) and

found that the ruling in Jndiana Harbor should no longer

be applied because of subsequent legislative changes. The

ALJ’s decision was reversed by the Review Board by

decision served June 18, 1984. The Board held that the

case was governed by the decision in Jndiana Harbor and

that the collection of charges by defendants for the

switching of empty privately-owned cars to facilities for

cleaning, lining, relining, maintenance, modifications, or

repairs was an unreasonable practice in violation of 49

U.S.C. §$10701(a) and 11121(a)(1). Complainants

filed a petition for administrative review.

Because this proceeding raised serious questions about

the continuing validity of the Jndiana Harbor ruling, we

issued a notice served October 9, 1984, and published at

49 Fed. Reg. 39,740 (1984) requesting comments and

informing the public that we might modify or reverse

8 For convenience we sha’! use the term private car owners to

refer to the entire scope of private car interests, including lessors,

lessees, and shippers.

® Complainants in No. 39380 are General American Transporta-

tion Corporation (GATC), General Electric Rail Car Services Cor-

poration (GE Rail), and Union Tank Car Company (Union Tank).

(When the complaint was filed General Electric Rail Car Services

Corporation was North American Car Corporation.)

43a

the ruling in Jndiana Harbor as conflicting with the

revenue adequacy, rate flexibility, and car service pro-

visions of the 4R Act and the Staggers Act. We reopened

the record in /ndiana Harbor so as not to foreclose any

options in our consideration of the appeal in Docket No.

39380.

Pursuant to our notice, we received not only initial

comments from a number of parties but also certain reply

comments, verified statements, and motions to strike.’

In order to consider all issues deemed pertinent by the

various participants, we issued a further notice in which

we denied the motions to strike, described a broad range

of concerns we desired the participants to address, posed

a number of questions, and solicited additional comments

and reply comments." Additional comments, and reply

comments were filed."

10Comments were filed by The Baltimore and Ohio Chicago

Terminal Railroad Company; Union Pacific Railroad Company and

Missouri Pacific Railroad Company (jointly); Elgin, Joliet and

Eastern Railway Company; Norfolk and Western Railway Com-

pany and Southern Railway Company (jointly); Consolidated Rail

Corporation; LO Shippers Action Committee; Evans Products

Company; Railway Progress Institute Committee on Tank Cars;

Union Equity Co-operative Exchange; complainants in No. 39380;

United States Steel Corporation; Trinity Industries Leasing Com-

pany; Interstate Railear Service, Inc.; MBF Industries, Inc.;

Mobil Oil Corporation; Phillips Petroleum Company; Pacific Mo-

lasses Company; Committee on Transportation and Distribution

of The Society of the Plastics Industry, Inc.; and Chemical Manu-

facturers Association.

11 Notice served March 15, 1985 and published in the Federal

12 Comments following this additional solicitation were filed by

complainants in No. 39380; Railway Progress Institute Committee

on Tank Cars; LO Shippers Action Committee; Phillips Petroleum

Company; Indiana Harbor Belt Railroad Company; The Baltimore

and Ohio Chicago Terminal Railroad Company; The Elgin, Joliet

and Eastern Railway Company; The Kansas City Southern Rail-

44a

PRELIMINARY MATTERS

In their petitions for administrative review, IHB and

BOCT requested oral argument. Granting such requests

is discretionary. See 49 C.F.R. § 1116.1(d). We conclude

that oral argument is unnecessary to resolve the issues

presented, and therefore deny IHB’s and BOCT’s re-

quests.

Phillips Petroleum Company moves for leave to file its

reply comments several days late. Acceptance of those

comments will not prejudice any party. Accordingly,

Phillips’ motion is granted.

DISCUSSION AND CONCLUSIONS

The major issues that we will discuss are: (1) Is the

Indiana Harbor rule currently working efficiently and

equitably? (2) Is the Indiana Harbor rule lawful and in

conformity with the legislative changes of the 4R Act and

the Staggers Act? and (3) Alternative remedies to the

Indiana Harbor rule.

A. Is the Indiana Harbor rule currently working effi-

ciently and equitably?

As noted, the Indiana Harbor rule provides that move-

ment of empty private rail cars to repair facilities is to

be without charge when there is more than a de minimis

economic benefit. We have reviewed the comments and

find that the rule does not produce an efficient or equi-

way Company; the Association of American Railroads; and the

Eastern and Southern Railroads.

Reply comments were filed by compiainants in No. 39380; LO

Shippers Action Committee; Railcar Repair Association; Railway

Progress Institute Committee on Tank Cars; Phillips Petroleum

Company; The Baltimore and Ohio Chicago Terminal Railroad

Company, the Association of American Railroads; and the Eastern

and Southern Railroads.

45a

table system of compensating rail carriers for repair

moves.

In deciding to impose the /ndiana Harbor rule, the

Commission was aware of the difficulties of directly

charging those carriers who benefited from the use of

private cars for the empty repair movements. The Com-

mission stated in Indiana Harbor, at 127, that:

The need for such repairs of privately owned cars

will usually arise as a result of use by many differ-

ent carriers over a considerable period of time. Each

such carrier is partially responsible for the need for

repairs, and ideally the costs should be charged to

each carrier accordingly. However, such an appor-

tionment is impossible as a practical matter. The

costs of moving “instrumentalities of transportation”

must be compensated for in such a manner that no

carrier which accrues a greater than average portion

of these costs will be unduly burdened. Rather than

costs for which precise compensation for particular

services is possible, the costs of repair movements of

privately owned cars must be treated as a common

cost which must be shared by all carriers which de-

rive revenue from the national private-car fleet.

These “shared costs” must be compensated for as

evenly as possible, for the absence of a comprehensive

nationwide scheme to distribute the cost burden in

proportion to the amount of economic benefit enjoyed

by individual carriers from private car use would

lead to a situation in which some carriers would be

overcompensated while others would indeed be per-

forming “free” transportation.

Recognizing the potential pitfalls in compensating car-

riers for repair movements, the decision concluded that

the equalization plan was a workable solution, but clearly

recognized that potential problems still remained to be

ironed out.

46a

The carriers in their comments have made it clear

that under the Indiana Harbor rule the costs of the re-

pair movements have unfairly been placed on certain

railroads who make a disproportionate number of repair

moves. Most often the railroads that bear the costs of

repair movements are terminating roads. The effect is

that these carriers are subsidizing other carriers who

have benefitted from the use of loaded private cars. A

carrier may not even have participated in loaded move-

ments at all as to many of the cars it is called on to

transport to repair sites— Yet, the Indiana Harbor rule

sets only the de minimis benefit test.

These problems are particularly troublesome for IHB

and BOCT. Both carriers have a number of repair shops

on their lines. From 1978 through 1982, IHB switched

5,805 cars to repair shops and the same number from

those facilities. If switching charges had applied, its

revenues would have been approximately $856,452. How-

ever, during this period its recovery under the tank car

equalization rule was only $96,263. Since it transported

loaded cars in greater than de minimis quantities, it

rightfully owed some contribution to repair move costs.

While no precise calculations can be made, it is evident,

however, that IHB bore repair move expenses greatly out

of proportion to its own responsibility for them.

BOCT kept no records of repair moves prior to its

tariff change that complainants challenge, but it esti-

mates that it averaged 33 no-charge repair moves daily

and considers its burden to be disproportionate.

Other carriers complain of disproportionate burdens.

The major tank car facility on Kansas City Southern’s

lines is at Zwolle, LA. Most cars moving to Zwolle for

repairs come from Beaumont, TX. That requires a 292-

mile, round-trip movement at no charge. The nearest

interchange point for repair ship movements is Shreve-

port, LA, 62 miles away. Union Pacific (UP) and Mis-

souri Pacific (MP) estimate that together they are ab-

mt i

eS NE R-tree ts Mishemte Bao

47a

sorbing $850,000 annually by their inability to charge

for repair shop movements.’* In summary, it is evident,

even without enough data to compute the exact extent of

undercompensation that carriers such as IHB, BOCT,

Kansas City Southern, UP, and MP face, that the In-

diana Harbor method of handling repair movements re-

sults in substantial cross subsidization among carriers in

general.

In Indiana Harbor, shipper interests argued that the

105% equalization rule formed a workable solution to

the problems of carriers such as IHB, that carriers would

be compensated for any excess empty repair mileage, and

that an ongoing study and a rulemaking in Ex Parte No. -

328 Investigation of Tank Car Allowance System, would

afford an opportunity for correcting any problems.** Jn-

13 UP and MP also make passing reference to storage moves, and

Kansas City Southern claims it is forced to store cars for free

when private repair facilities are full. However, that issue is

outside the scope of this proceeding.

14 Complainants (private car owners) and their supporters now

argue that the absence of expressions of dissatisfaction with the

tank car equalization rule by rail carriers during the Ex Parte

No. 328 renegotiations conducted under the reopening order in

Investigation of Tank Car Allowance System, 367 I.C.C. 48 (1982)

is evidence that undercompensation for repair moves is not a sig-

nificant problem. They argue that, if the equalization rule is

failing to result in a fair allocation of repair move expenses the

rail carriers would have raised that issue in the negotiations.

The carriers respond, however, that, although there was limited

discussion of repair moves, the railroads did not attempt to nego-

tiate the issue because (1) the matter is in litigation in these

proceedings; and (2) the railroads believe such expenses should

be part of the mileage allowance system instead of the equalization

rule. We take official notice that the renegotiated agreement sub-

mitted in Ex Parte No. 328 expressly provides that repair move

expenses paid by tank car owners are to be included in the repair

expenses data used in arriving at tank car mileage allowances.

This in part explains the railroads” lack of need further to recon-

sider the equalization rule during the recent negotiations. More-

over, there are other aspects of the rules that were not agreed

to and further study is ongoing.

48a

diana Harbor, at page 120. Stating that a more devel-

oped record might lead to different conclusions, the Com-

mission, as noted, decided that the 105% equalization rule

reflected a more equitable approach to the allocation of

responsibility for the repair-movement practical problem

than any other solution proposed at that time. Indiana

Harbor, at 128-129, 135, and 137.

We can now see, however, that, although IHB received

some compensation under the equalization rule, it was not

nearly enough, and the source of such funds was payment

for the mileage in excess of 105% (now 106%) that was

mainly designed to represent shipper-responsibility,

empty operations such as transfers. The equalization

rule does not deal with intracarrier allocation of repair

movements although they ostensibly were to be compen-

sated adequately by the 5% element. Yet that is where

the main misallocation lies. As noted, the railroad indus-

try overall is responsible for the costs of ordinary repairs

to private cars that carriers use in their loaded opera-

tions, but, as demonstated earlier, there is no necessary

relationship between each carrier’s share of repair move

responsibility in terms of loaded revenue miles and its

participation in repair move operations. Since the equal-

ization rule does not deal with that problem, then a

fortiori it cannot prevent misallocation and cross sub-

sidization. Some other solution is therefore needed. _

B. Is the Indiana Harbor rule lawful and in conformity

with the legislative changes of the 4R Act and the Stag-

gers Act?

Prior to our discussion of a solution to the repair

movement problem, we will re-examine the “instrumen-

talities of transportation” and “distinct rail services”

prinicples as applied in Indiana Harbor.

1. The instrumentality of transportation issue.

A basic foundation upon which Irdiana Harbor was

decided was the application of the “instrumentality of

49a

transportation” principle. We must re-examine it to see

whether it was and still is sound or legally required.

The 1947 Union Tank decision, swpra, reversed a Divi-

sion opinion that switching empty tank cars for repairs

is transportation of “property” for which charges should

be assessed. Although the cars are “property” within

the broad meaning of the term, Union Tank states that,

when they are in use as instrumentalities of transporta-

tion, whether owned by a carrier or a private owner,

they are not “property” within the meaning of then

§6(7) of the Act. The decision held that such cars do

not lose their instrumentality of transportation status

when taken out of service temporarily, and, accordingly,

that they are not subject to charges for line-haul move-

ments or switching movements within terminals.

The Commission went on to state that the question of

whether the mileage allowance includes the cost of repair

switching has no important bearing on the issue. The

evidence in that proceeding incicated that allowances were

determined with the understanding that repair switching

would be done without charge and those costs would not

be included within the allowance, but the decision says

that, if the repair switching costs were included in the

allowance, the proper remedy would lie in readjustment

of the mileage allowance and continuance of the practice

of switching without charge.”

The Union Tank approach, however, was established

in an era when rate averaging and cross subsidy were

15 As a dissenting opinion noted: (1) in Use of Private Passenger

Train Cars, 155 I.C.C. 775, 786 (1929), the Commission said that

charging for repair moves was acceptable; and (2) in Sioux City

Term. Ry. Switching, 241 I.C.C. 53 (1940) the Commission stated

that mileage allowances were supposed to cover all costs of supply-

ing private cars, including repair move switching costs. Union

Tank did not expressly overrule those cases, but its treatment of

empty repair movements has been the standard since then.

50a

commonplace, often encouraged and clearly deemed ac-

ceptable. Indeed, prior decisions in Indiana Harbor take

a similar approach by adopting a nationwide, averaging

solution. The 4R Act’s legislative history notes that a

cross subsidization policy had been part of public trans-

portation since the beginning of Commission regulation,

but that that policy should be changed.’®

Union Tank reached its conclusion without detailed

analysis. Instrumentalities of transportation are by defi-

nition equipment whose costs are a responsibility of rail-

roads because such equipment enables them to meet their

common carrier obligations. The key to understanding the

Union Tank holding is knowing that the customary way

of handling such matters then was through collective

responsibility. In that setting, it was rational simply to

treat “instrumentalities of transportation” as a category

for which charging was improper. Now, however, a closer

look at the situation is required.

Section 6(7) and its successor section forbid carriers

from transporting passengers or property unless rates

and regulations are filed and published in accordance with

other parts of the Act. However, the former § 6(7) man-

date does not prohibit the collection of charges.’ It

merely requires that rates be published in tariffs before

chargeable transportation operations are performed.

That leaves unaddressed the question of the lawfulness

or unlawfulness of initially collecting charges on instru-

mentalities of transportation pending final railroad settle-

ment of responsibility through the mileage allowance

mechanism. Thus, even when it was decided, Union Tank

did not reflect a thorough legal analysis.

No other statutory section supports the Union Tank

instrumentality of transportation approach. Section

10747 provides that a railroad may publish in a tariff “a

16S. Rep. No. 499, 94th Cong. 1st Sess., at 11 (1975).

17 A review board reached this same concluusion in Midwest

Freight Car Co.—Declaratory Order, 358 I.C.C, 462, 470 (1977).

Sener vee! 2

5la

charge or allowance for transportation or service for

property when its owner, directly or indirectly, furnishes

a service related to or an instrumentality used in the

transportation or service,” and that the Commission may

prescribe the maximum reasonable charge or allowance.

That language does not prohibit carriers from initially

charging for repair moves and then letting the car own-

ers recover those expenses in proper proportion through, -

for example, mileage allowance payments from carriers

using private cars in loaded moves. Section 11122, like-

wise, does not prohibit carriers from initially charging

for repair moves with subsequent recovery by car owners.

The statutory scheme for paying for private cars is

based upon the payment of allowances by carriers to car

owners. No statutory requirement would be violated if

private car owners initially pay repair move costs and

then are reimbursed for those expenses through the al-

lowance system. We conclude that Union Tank’s method

of handling repair moves does not presuppose a statutory

bar to charging initially for them.

2. The distinct rail service issue.

Section 202(d) of the 4R Act amended what is now 49

U.S.C. § 10728 to require that the Commission establish

expeditious procedures for permitting publication of sepa-

rate rates for distinct rail services. In a rulemaking pro-

ceeding to implement that directive, the Commission de-

fined distinct rail services as “those railroad transporta-

tation services, which are separate from line-haul trans-

portation services necessary for the movement of freight,

and for which a specific tariff item is published * * *.”

Procedures for Publication of Separate Rates, 355 I.C.C.

684 (1977) (Procedures).'* Indiana Harbor concluded

that, since repair movements are necessary to the move-

ment of freight in revenue service, switching for repairs

cannot be considered a distinct rail service.

18 The regulations are now codified at 49 C.F.R. § 1137.2.

52a

Defendants contend that switching is distinct and sepa-

rate from line-haul moves. IHB argues that the phrase

“necessary for the movement of freight” refers to the na-

ture of the service rather than its purpose. BOCT refers

to dictum in a review board decision, No. 38646, Inland

Steel Company v. Illinois Central Gulf Railroad Company

(not printed), served May 24, 1982. The board said that

repair moves at issue in that proceeding were a distinct

service, but it acknowledged that reaching that issue was

not a prerequisite to disposition of the proceeding.

Complainants (private car owners) and their sup-

porters argue: (1) that the Commission is bound by the

regulations defining distinct rail services unless they are

changed in a reopened rulemaking proceeding; (2) that

§ 10728 was not changed by the Staggers Act; and (3)

that the conclusion in Indiana Harbor on this issue is

correct and must be followed because it was affirmed on

judicial review and also was followed in another court de-

cision, Evans Products Co. v. ICC, 729 F.2d 1107, 1109

(7th Cir. 1984) .'°

Separate charges for distinct rail services were per-

missible under §6(1) of the Act prior to the 4R Act’s

amendments (Procedures, supra, at 690) and the purpose

of the 4R Act’s changes was to “promote” separate pric-

ing of distinct rail and rail-related services as part of an

overall emphasis on fostering competition.”? Moreover, the

Commission emphasized that a-purpose of the regulations

was explicitly to state its policy of encouraging the sepa-

rate publication of distinct rail service rates. Procedures,

supra, at 690.

19 Complainants also contend that, in light of the notoriety of

the distinct rail service holding in Jndiana Harbor and the compre-

hensiveness of the Staggers Act, the fact that Congress did not

choose to amend §10728 is an indication that it endorsed the

continued validity of Indiana Harbor.

20 Section 10728 itself uses the word “promote.”

EPR POLE TO PERSE) f

58a

The definition that was initially proposed specifically

stated that distinct rail services embraces, but was not

limited to, switching and 16 other services. The Commis-

sion, however, decided: (1) to use a general definition;

(2) to include the phrase “which are separate from line-

haul transportation services necessary for the movement

of freight” to avoid separate rates leading to a detrimen-

tal breakdown of existing line-haul rates; and (3) to

make individual determinations on a case-by-case basis.

Procedures, supra, at 696, 697, and 698, respectively.

Operationally, switching for repairs clearly is distinct

from line-haul service, but it is also true that repair

movements are necessary for the movement of freight in

line-haul service. Line-haul transportation cannot be per-

formed without the use of rail cars, and rail cars can-

not be operated over their useful lifespans without pe-

riodic maintenance. Thus, this issue is not as simple as

considering the separate operational nature of the service

alone.

On the other hand, we demonstrate in this decision that

the present method of handling repair moves results in

harmful cross subsidization that is contrary to the aims

of the 4R Act, the Staggers Act, § 10728 (which was

intended to promote individual market pricing of differ-

ent aspects of service) and that the various proposals for

making intra carrier adjustments are not reasonably

feasible. In light of that we cannot, without further anal-

ysis, let the Indiana Harbor distinct rail ruling (with its

lack of supporting discussion or logic) bar corrective ac-

tion that is now shown to be needed.

Since the purpose of the “necessary for the movement

of freight” language in the regulations was to avoid a

detrimental breakdown of line-haul rates, it is appro-

priate to examine the effect on line-haul rates of a

changeover to a system of initial charging for repair

moves. Unless that changeover would cause a line-haul

rate problem, such separate rates should be promoted.

54a

The revised system, as will be explained, will simply

result in different methods of accounting for the repair

cost element of private car owners’ expenses. In the end,

the railroads as an industry bear those expenses under

either method, so they would need to consider that aspect

along with other factors in setting their rates ror loaded

movements. Under the Jndiana Harbor method, the rail-

roads bear the costs of repair expenses other than repair

moves by making payments to car owners, and they col-

lectively bear the expenses of repair moves by not charg-

ing car owners for that service in the first place. Under

a method that would let the railroads charge for repair

moves, the car owners may recover those expenses

through the mileage allowance system in the same way

that they recover other car repair costs. Thus, the dif-

ference is in the mechanics of the process the railroads

follow in bearing those expenses, rather than in the final

result. While retaining ultimate compensation for car

owners, the latter method would avoid a disproportionate

burden of repair moves among certain carriers.

Consideration of repair move expenses in the line-haul

rate is thus not affected by the repair move method used,

except possibly to the extent that a particular carrier’s

significant overburden or underburden under the old sys-

tem would be reflected in its rate structure. In that case,

removal of the cross subsidization factors would have a

favorable effect on the existing rate structure rather than

cause a detrimental breakdown. The policy of promoting

separate charges for distinct services to foster competi-

tion outweighs any claimed interest*in keeping intact a

system that rewards and punishes without relationship

to individual costs or revenues.

Accordingly, consistent with the distinct rail service

general definition, and as a result of using the implement-

ing rules’ case-by-case approach to apply them to specific

circumstances, we conclude that the provisions of § 10728

and our implementing rules at 49 C.F.R. § 1137.2 do not

bar the adjustment we find necesary in this decision in

55a

the method of handling the costs of moving private cars

for ordinary repairs.

8. Legislative Chanaes

We have in earlier decisions found that reconsidering

the Indiana Harbor decision in light of the significant

changes in the Commission’s regulation of railroads re-

sulting from the 4R Act and Staggers Act is necessary.

The 4R Act provided, among other things, for: separate

rates for distinct rail services (§ 202); standards and

procedures for establishment of adequate revenue levels

(§ 205); a 7% “zone of reasonableness” within which the

ICC could not suspend a proposed rate while investigating

the proposal (§ 202); and a narrower scope of review of

railroad ratemaking generally (§ 202).

The Congress in the Staggers Act mandated the Com-

mission to allow railroads even greater flexibility in

setting rates. The Staggers Act encouraged the establish-

ment of demand sensitive rates (§ 217), and greater rate

flexibility (§§ 202 and 203).

The new Rail Transportation Policy in the Staggers

Act provides that the United States Government shall

“allow, to the maximum extent possible, competition and

the demand for services to establish reasonable rates for

transportation by rail” [49 U.S.C. §10101la(1)]; “pro-

mote a safe and efficient rail transporation system by

allowing rail carriers to earn adequate revenues” [49

U.S.C. § 10101a(3)]; and “encourage honest and efficient

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