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08/02/78 National Association of v. Te Commerce Commission and

August 2, 1978

NATIONAL ASSOCIATION OF RECYCLING INDUSTRIES, INC., PETITIONER

v.

INTERSTATE COMMERCE COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS ATCHISON, TOPEKA & SANTA FE RAILWAY

NATIONAL ASSOCIATION OF RECYCLING INDUSTRIES, INC., PETITIONER

v.

INTERSTATE COMMERCE COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS ATCHISON, TOPEKA & SANTA FE

RAILWAY COMPANY, ET AL., AND EASTERN RAILROADS, INTERVENORS INSTITUTE OF SCRAP IRON AND STEEL, INC., PETITIONER

v.

INTERSTATE COMMERCE COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS NORTHWESTERN STEEL & WIRE COMPANY, EASTERN RAILROADS, ATCHISON, TOPEKA & SANTA FE RAILWAY



Before WRIGHT, Chief Judge, and SWYGERT* and LEVENTHAL, Circuit Judges.

UNITED STATES COURT OF APPEALS, DISTRICT OF COLUMBIA CIRCUIT

COMPANY, et al., AMERICAN PAPER INSTITUTE, INC., ALUMINUM

ASSOCIATION, INC., FORT HOWARD PAPER COMPANY, EASTERN

RAILROADS, AND BERGSTROM PAPER COMPANY, et al., INTERVENORS

COMPANY, et al., AND ARMCO STEEL CORPORATION, INTERVENORS

Nos. 77-1187, 77-1193, 77-1292 1978.CDC.135

Date Decided: August 2, 1978; As Amended August 7 and 25, and Sept. 6, 1978.

As Amended on Rehearing October 16, 1978.

Petitions for Review of Orders of the Interstate Commerce Commission

The Interstate Commerce Commission instituted an investigation into the lawfulness of the rate structures on recyclable and virgin resource materials pursuant to Section 204 of the Railroad Revitalization and Regulatory Reform Act of 1976. After an investigation, the Commission, with three Commissioners dissenting, concluded that the majority of the rates were lawful and declined to order their removal. Petitioners filed petitions to review the Commission's order, claiming that the Commission did not comply with the mandate of Section 204 by, among other things, relieving the railroads of their statutory burden of proof and declining to order removal of unlawful rates on competing recyclable materials. The United States, as statutory respondent, joined in petitioners' challenge to the Commission's order. In a consolidated petition, petitioner also challenged a Commission order terminating two general revenue proceedings conducted during the pendency of the Commission's investigation on the ground that the Commission did not comply with the requirements of the National Environmental Policy Act of 1969. Held : The order of the Commission in its investigation is vacated, and the case remanded for further proceedings consistent with this opinion; the consolidated petition to review is dismissed as untimely filed. 190 U.S.App.D.C. at -- - -- , 585 F.2d at 524-541. 1. In view of the provisions of Section 204, its legislative history, and the background of congressional concern surrounding its enactment, the Commission's mandate was to investigate rates for recyclable or recycled materials and competing virgin natural resource materials, and to require removal from rate structures of unreasonableness or unjust discrimination; and the Commission was not permitted to assume or defer to asserted revenue needs or to give them greater weight than environmental and energy goals, but was to uphold disparate rate structures only where actually warranted after consideration of all of the transportation characteristics, including the competitive relationships and costs of the materials involved. 190 U.S.App.D.C. at -- - -- , 585 F.2d at 530-534. 2. On this record, the Commission's order does not represent a reasoned compliance with the mandate of Section 204. 190 U.S.App.D.C. at -- - -- , 585 F.2d at 534-541. (a) The Commission did not address or require proof on the focal question whether the substantial rate disparities between recyclable and virgin products are justified by differences in transportation characteristics. 190 U.S.App.D.C. at -- - -- , 585 F.2d at 535-541. (b) Several of the Commission's underlying findings and conclusions with respect to the reasonableness and unjust discrimination issues were inconsistent with its mandate and inadequately supported. 190 U.S.App.D.C. at -- - -- , 585 F.2d at 535-541. 3. The consolidated petition to review, filed in advance of the jurisdictional time limit, must be dismissed as premature. 190 U.S.App.D.C. at -- , -- - F.2d at -- .

APPELLATE PANEL:

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WRIGHT; PER CURIAM

In these consolidated cases *fn1 we are called upon to review a final report and order of the Interstate Commerce Commission declining to remove alleged unlawful rates from the freight rate structures for recyclable and virgin resource materials transported by the nation's railroads. The order under review, *fn2 dissented from by three commissioners *fn3 and challenged here by both representatives of recycling industries *fn4 and the United States, *fn5 reflects the agency's efforts to comply with Section 204 of the Railroad Revitalization and Regulatory Reform Act of 1976. *fn6 This provision directed the Commission to conduct an expedited investigation into the lawfulness of the rate structures and to order removal of all rates not shown by the railroads to be just, reasonable, and nondiscriminatory. *fn7 We find that the challenged order does not represent a reasoned compliance with the mandate expressed by Congress in Section 204. We therefore vacate the order and remand for further proceedings. I

The significance and purpose of the investigation required by Section 204 cannot be understood apart from the Commission's past experience with ratemaking on recyclable materials. That experience occurred largely in the context of general revenue proceedings, in which the Commission's main task involved determination of the appropriate revenue levels and needs of the railroads, rather than the lawfulness of the rates on these materials. It is to the controversial history *fn8 of those proceedings that we turn first in placing the investigation under review, and the Commission's approach and findings therein, in proper perspective.

Under the Interstate Commerce Act *fn9 the initiative for ratemaking is vested in the railroads, subject to approval by the Commission in an appropriate proceeding. One method by which the railroads may initiate a rate increase is by filing a group tariff in which all or substantially all of the nation's railroads propose an across-the-board percentage increase in rates. In these so-called general revenue proceedings the Commission may either find the proposed increase just and reasonable after taking evidence related to the general need for increased revenues, *fn10 or "approve" the increase by declining to declare it unlawful following an investigation. *fn11 The characteristic feature of these proceedings is that the Commission focuses only on the need of the carriers for increased revenues, not on whether any particular application of the increase is just, reasonable, or nondiscriminatory. Nevertheless, the effect of Commission approval of a general increase is to shift the burden of proof from the carriers favoring the increase to complainants later challenging it. *fn12 Once the general increase has been approved, particular applications of the increase may then be challenged in subsequent proceedings under the Act. *fn13

Pursuant to this scheme the Commission approved, over the past decade, a series of annual upward adjustments in rates applicable to recyclable materials. *fn14 Appearing in proceedings to oppose the proposed increases, shippers and representatives of recycling industries contended that the proposed rates and underlying rate structures on recyclable products were unreasonably high and discriminatory when compared with the lower rates and rate structures traditionally prevailing on virgin resource materials. They also maintained that application of the proposed increases to recyclables would adversely affect the environment by discouraging industrial use of recycled products, thereby contributing to depletion of the nation's virgin resources. In the limited context afforded by general revenue proceedings, and subject to the aforementioned rules governing complainants' burden of proof, the Commission invariably concluded that complainants had neither met their burden of refuting the railroads' submission of needed revenues, nor otherwise demonstrated that demand for recyclables would be unlawfully reduced as a result of the proposed increase. *fn15 Numerous environmental impact statements and threshold assessment surveys were also prepared, *fn16 concluding that increases in freight rates would have either no effect or a negligible one on industrial use of recycled products.

Throughout this period the Commission steadfastly refused to conduct a broad investigation into the lawfulness of the underlying rate structures on recyclable products. Apparently of the view that such an investigation was unnecessary in light of the findings reached in its general revenue proceedings, the Commission repeatedly declined requests by representatives of the recycling industry to undertake such an investigation, *fn17 and, indeed, vigorously opposed legislation under consideration by Congress that would have required nothing less. *fn18 Prodded by increasing litigation, *fn19 however, the Commission, on December 12, 1973, finally instituted an investigation *fn20 into the lawfulness of the rate structures for movements of scrap iron and steel, one of the recyclable materials herein involved. The Commission's final report, issued on February 4, 1976, confirmed generally its previous findings with respect to scrap iron and steel. *fn21 Citing the relative demand inelasticity of scrap iron and steel to freight rates, and finding that the relationship between scrap iron and iron ore in the steelmaking process is complementary and not competitive, *fn22 the report concluded that the rate structures were reasonable and nondiscriminatory. The environmental impact statement prepared for this proceeding also concluded that these rate structures did not have a significant impact on the environment. *fn23

On February 5, 1976 Congress enacted the Regulatory Reform Act, including within it Section 204. This section, in addition to directing the Commission to investigate the rail rate structures for "recyclable materials" and for "competing virgin natural resource materials," as defined therein, *fn24 expressly reversed, for the purpose of the investigation, the rules normally governing complainants' burden of proof. It directed the Commission to determine, after a "public hearing during which the burden of proof shall be on" the railroads, whether the "rate structure(s), as affected by rate increases applicable to the transportation of such competing materials, is just, reasonable, and nondiscriminatory." *fn25 Section 204 further instructed the Commission to order removal of all unreasonableness or unjust discrimination from such rate structures. *fn26 The remaining provisions of the statute required the Commission to comply fully with the requirements of NEPA, *fn27 and directed the Environmental Protection Agency *fn28 and the Department of Transportation *fn29 to participate and assist the Commission in carrying out the required investigation.

Responding to this mandate, the Commission instituted the proceeding under review on February 25, 1976. By order it designated recyclable and virgin resource materials for inclusion within its investigation and instructed the railroads, in accordance with the burden of proof imposed upon them by Section 204, to submit evidence with respect to the costs and revenues derived from their movements of the listed materials. *fn30 It also, by order, incorporated into the record the findings and conclusions of its previous investigation in Ex Parte No. 270. *fn31 After public hearings and submission of verified statements from interested parties, the Commission issued its final report and order, accompanied by draft and final environmental impact statements, on February 1, 1977.

The evidence submitted by the railroads was repeatedly criticized by the federal agencies participating in the investigation, *fn32 and by the Commission itself in its final report. *fn33 It did indicate, however, that the rates for movements of the listed recyclable materials were significantly higher than those for their virgin resource material counterparts. *fn34 In many instances the railroads' evidence revealed that the rates on recyclables were in excess of the national average, *fn35 while corresponding rates on virgin materials were below compensatory levels. *fn36 Nevertheless, the Commission refused to conclude that the rate structures were unlawful based solely on the evidence of wide rate disparities. Instead, it determined that it would apply traditional ratemaking criteria to determine the lawfulness of the rate structures on a product-by-product basis. *fn37 Applying such criteria, it concluded that the rate structures on practically all of the recyclable materials were reasonable and that none of the rate structures were discriminatory. The articulated bases for these determinations varied slightly according to the product involved. Referring to the relative demand inelasticities of recyclable materials to freight rates, as shown by freight commodity statistics submitted by the railroads *fn38 and demand elasticity studies *fn39 employed in the environmental impact statement, the Commission found that the recent rate increases did not result in a decreased volume in the amount of recyclable traffic moved by the railroads. The Commission further found that several of the recyclable materials did not in fact compete with their virgin material counterparts for transportation purposes, and that shippers of recyclables were not competitively injured by current rate disparities. Based on these findings, supported by the conclusions of the accompanying environmental impact statement, *fn40 the Commission issued the final order here under review, declining, with few exceptions, *fn41 to order any reductions in the applicable rates.

Three Commissioners dissented from the majority's report, arguing that the Commission did not comply with its mandate under Section 204. *fn42 According to the dissenting Commissioners, the majority unlawfully relieved the railroads of their burden of proof under Section 204 by failing to require the railroads to justify the rate structures based on the transportation characteristics of the products involved. Advancing similar as well as other related challenges to the Commission's order, *fn43 petitioners thereupon filed these petitions for review, in which the United States has joined in urging that the order be set aside. II

Much of the controversy throughout this proceeding has centered on the appropriate interpretation to be given to the Commission's mandate under Section 204. We do not believe the interpretative issue is nearly as difficult as the array of conflicting and exceedingly elaborate positions presented by the parties would suggest. *fn44 Rather, we believe the language, and particularly the legislative history and background, of Section 204 make easily discernible the Commission's mandate in this investigation.

Section 204 was the result of several years of congressional study *fn45 and consideration of the problems of the recycling industry as a whole and the freight rates applied to recyclable products in particular. Informed of the limited amount of recycling occurring throughout the nation, and concerned with what it regarded as a regulatory barrier to attainment of national environmental and agency goals associated with promotion of industrial recycling, *fn46 Congress responded initially by including Section 603 within the Regional Rail Reorganization Act. *fn47 This section directed the Commission to "adopt appropriate rules" to "eliminate discrimination against the shipment of recyclable materials in rate structures and in other Commission practices where such discrimination exists." *fn48 As has ...


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