CSX Transportation, Inc. v. Surface Transportation Board , 568 F.3d 236 ( 2009 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 7, 2009 Decided October 23, 2009
No. 07-1369
CSX TRANSPORTATION, INC.,
PETITIONER
v.
SURFACE TRANSPORTATION BOARD AND UNITED STATES OF
AMERICA,
RESPONDENTS
AMERICAN CHEMISTRY COUNCIL, ET AL.,
INTERVENORS
Consolidated with 07-1370, 07-1371, 07-1372, 07-1410,
08-1194
On Petition for Rehearing
Before: ROGERS, TATEL, and GRIFFITH, Circuit Judges.
Opinion for the Court filed by Circuit Judge TATEL.
TATEL, Circuit Judge: This petition for rehearing asks
that we reconsider one aspect of our earlier opinion denying
petitions for review of a Surface Transportation Board
regulation that provides two simplified methods for resolving
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rail rate disputes too small to bring under ordinary procedures.
As part of its challenge to the regulation, Petitioner Norfolk
Southern argued that in violation of the Administrative
Procedure Act the Board’s Notice of Proposed Rulemaking
had failed to give notice of a significant change that surfaced
only in the final rule. Given that no party had presented that
argument to the Board in a petition for reconsideration, we
declined to consider it. Because we now agree with Norfolk
Southern that we should have addressed the issue, and
because we conclude that the Board failed to provide
adequate notice, we vacate the relevant portions of the
regulation, as well as of our earlier opinion.
I.
Our earlier opinion describes the background of this case
and the two simplified methods for resolving rail rate
disputes. CSX Transp., Inc. v. Surface Transp. Bd., 568 F.3d
236, 238–40 (D.C. Cir. 2009). The three benchmark method,
the one at issue here, compares the challenged rate to three
benchmark figures, one of which—the R/VCCOMP—is derived
by comparing the rail movement at issue with a group of
similar movements. The Board selects this comparison group
from groups of movements the parties propose, and the parties
in turn choose the comparison movements from a survey of
movements across the nation, the so-called waybill sample.
Under the proposed rule, parties could suggest comparison
groups drawn from the most recent year of waybill sample
data. Simplified Standards for Rail Rate Cases (“NPRM”),
STB Ex Parte No. 646 (Sub-No.1), at 33 (served July 28,
2006) (notice of proposed rulemaking). Under the final rule,
however, parties may draw from the four most recent years of
data. Simplified Standards for Rail Rate Cases (“Decision” or
“final rule”), STB Ex Parte No. 646 (Sub-No. 1), at 80, 83
(served Sept. 5, 2007).
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In their petition for review, Norfolk Southern and several
other railroads argued that the proposed rule violated the
Administrative Procedure Act because it failed to provide
notice that the Board was considering switching from one
year to four years’ worth of data. See 5 U.S.C. § 553(b)(3)
(requiring agencies to give notice of “the terms or substance
of the proposed rule or a description of the subjects and issues
involved”). As petitioners pointed out, nothing in the NPRM
expressly indicated that the Board was considering expanding
the data from which parties can draw comparison groups.
The Board did not argue otherwise. Yet because the railroads
had failed to present this argument to the Board, we declined
to address it. CSX, 568 F.3d at 246–47. Although the
railroads argued that they had no way of knowing of any lack
of notice until the Board promulgated its final rule, we
pointed out that they could have presented the argument to the
Board in a petition for reconsideration. See 49 C.F.R.
§ 1110.10. In so ruling, we acknowledged the holding of
Darby v. Cisneros, 509 U.S. 137 (1993), that absent a
statutory or regulatory requirement, courts have no authority
to require parties to exhaust administrative procedures before
seeking judicial review. We distinguished Darby, however,
finding that nothing in that case extinguished the general
requirement that parties give the agency a chance to rule on
all objections in the first instance. CSX, 568 F.3d at 247.
In its petition for rehearing, Norfolk Southern challenges
our characterization of Darby. According to Norfolk
Southern, Darby bars courts from imposing an exhaustion
requirement where agency action has become final under the
APA. See Darby, 509 U.S. at 143–53. Although a party’s
failure to raise an issue during agency proceedings prior to a
final appealable rule or order may result in waiver of that
issue, Norfolk Southern argues that a court may not require a
party to return to the agency to raise an issue that arises only
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at the final rulemaking. In response, the Board insists that our
earlier opinion correctly interpreted Darby: Darby addresses
only exhaustion of remedies, leaving in place the requirement
that a petitioner present its argument to the agency at least
once before seeking judicial review.
Having reconsidered this issue, we now agree with
Norfolk Southern. “Wisdom,” Justice Frankfurter once said,
“too often never comes, and so one ought not to reject it
merely because it comes late.” Henslee v. Union Planters
Nat’l Bank & Trust Co., 335 U.S. 595, 600 (1949)
(Frankfurter, J., dissenting).
Darby stands for the proposition that absent a statutory or
regulatory requirement to the contrary, courts have no
authority to require petitioners seeking judicial review of a
final agency action to further exhaust administrative
procedures. Here, although Board regulations do permit a
petition for rehearing, neither the ICC Termination Act of
1995 nor the Board’s regulations requires one. See 49 U.S.C.
§ 722; 49 C.F.R. §§ 1110.10, 1115.3(f). Under Darby,
therefore, we had no authority to require Norfolk Southern to
file a petition for rehearing once the agency issued its final
rule.
Our earlier opinion relied on ExxonMobil Oil Corp. v.
FERC, 487 F.3d 945 (D.C. Cir. 2007), in which we rejected
petitioners’ argument that the absence of a rehearing
requirement in the Interstate Commerce Act (which was
implicated because the case involved oil pipelines) meant that
they had no obligation to present their arguments to FERC.
But neither we nor any party noticed that the ExxonMobil
petitioners had never alleged an inability to raise their
arguments before issuance of the final rule. Because they
could have presented their arguments to the agency in the first
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instance, ExxonMobil applied the well-established doctrine of
issue waiver, which permits courts to decline to hear
arguments not raised before the agency where the party had
notice of the issue. See, e.g., United States v. L.A. Tucker
Truck Lines, 344 U.S. 33, 35–37 (1953); Appalachian Power
Co. v. EPA, 251 F.3d 1026, 1036 (D.C. Cir. 2001). As
ExxonMobil explains, petitioners’ “error was not failing to
seek rehearing, but rather failing to raise the issue at all.”
ExxonMobil, 487 F.3d at 962.
Unlike the ExxonMobil petitioners, Norfolk Southern
insists that it had no way to raise the notice argument until the
Board issued its final rule. This is clearly correct. The
NPRM mentions providing only one year’s worth of data
from which parties could draw comparison groups and
nowhere indicates that the Board might consider expanding
that to four years’ worth of data. Given that, and given that
Norfolk Southern had no obligation to file a petition for
reconsideration, it had a right under Darby to seek judicial
review of its argument that the Board failed to give adequate
notice of the change from one-year to four-year data samples.
II.
To satisfy the APA’s notice requirement, the NPRM and
the final rule need not be identical: “[a]n agency’s final rule
need only be a ‘logical outgrowth’ of its notice.” Covad
Commc'ns Co. v. FCC, 450 F.3d 528, 548 (D.C. Cir. 2006).
A final rule qualifies as a logical outgrowth “if interested
parties ‘should have anticipated’ that the change was possible,
and thus reasonably should have filed their comments on the
subject during the notice-and-comment period.” Ne. Md.
Waste Disposal Auth. v. EPA, 358 F.3d 936, 952 (D.C. Cir.
2004) (citations omitted). By contrast, a final rule fails the
logical outgrowth test and thus violates the APA’s notice
requirement where “interested parties would have had to
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‘divine [the agency’s] unspoken thoughts,’ because the final
rule was surprisingly distant from the proposed rule.” Int’l
Union, United Mine Workers of Am. v. Mine Safety & Health
Admin., 407 F.3d 1250, 1259–60 (D.C. Cir. 2005) (internal
citations omitted).
In this case, the Board offers a two-part argument that its
final rule represents a logical outgrowth of the NPRM. It first
claims that the release of four-year data—albeit for another
purpose—was “a foreseeable and reasonable result of other
changes advocated by the railroads.” Resp’t Br. 33. Under
the previous three benchmark approach, two benchmarks—
the RSAM and R/VC>180—were calculated using four years’
worth of private data. See Rate Guidelines—Non-Coal
Proceedings, S.T.B. Ex Parte No. 347 (Sub-No. 2) at 16, 20
(served Dec. 31, 1996). By contrast, the NPRM proposed to
calculate those two benchmarks based on the railroads’ public
filings. NPRM at 23. Although no release of private data
would be necessary under the proposed rule, the NPRM
indicated that if the method for calculating the two
benchmarks remained the same, parties would be unable to
verify the benchmarks unless the Board released the data. Id.at 23 & n.41. According to the Board, given that the railroads
themselves persuaded the Board not to adopt the public filings
proposal, see Decision at 80–82, railroad petitioners should
have foreseen that the Board would release the four-year data
to enable parties to verify the benchmarks.
Second, the Board argues that the railroads had notice
that parties would draw comparison groups from whatever
data the Board released. In support, the Board notes that the
NPRM and the final rule contain identical language regarding
the comparison groups. Compare NPRM at 20 (“The
[comparison] movements would be drawn from the Waybill
Sample provided to the parties by the Board.”), with Decision
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at 18 (“The [comparison] movements must be drawn from the
Waybill Sample provided to the parties by the Board at the
outset of the case.”), and Decision at 83 (“As explained in the
NPRM, we will select the comparison group based on
information contained in the Waybill Sample released to the
parties at the outset of the case . . . .”) (internal citations
omitted). As a result, the Board argues, the railroads should
have foreseen that the same data released for the other two
benchmarks would be used for comparison groups.
The railroads respond that the Board’s “convoluted
‘explanation’ of its heretofore undisclosed, ‘complex’ path” to
the final rule’s use of four-year data stands as “cogent proof
that this change was anything but a logical outgrowth of the
Board’s proposal.” Railroad Petr’s’ Reply Br. 15. The
railroads point out that the NPRM proposed drawing
comparison groups from the most recent year’s worth of data
and never mentioned the possibility that the Board might
consider using data for a longer period of time. See NPRM at
33. Indeed, the railroads tell us, and the Board nowhere
disagrees, that not one commenter indicated that it understood
the proposal to mean that the Board might consider using
more than one year’s worth of private data. Railroad Pet’rs’
Br. 8.
Responding to the Board’s second argument, the
railroads contend that the proposal to calculate two
benchmarks from public data “had nothing to do with the
number of years from which comparable movements would
be drawn.” Railroad Pet’rs’ Reply Br. 15–16. Noting that the
final rule expanded the data available for comparison
movements “in a very oblique and indirect manner,” the
railroads protest that “two separate sections of the final rule,
which decide wholly unrelated issues, must be cobbled
together” to conclude that the rule authorizes the use of four
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years’ worth of data for comparison movements. Railroad
Pet’rs’ Br. 12. According to the railroads, because the NPRM
nowhere suggested that the two sections were linked, it failed
to give adequate notice that the Board was considering using
anything other than the most recent year’s data to derive
comparison groups.
As mentioned above, a final rule qualifies as a logical
outgrowth of the proposed rule if interested parties “‘should
have anticipated’ that the change was possible.” Ne. Md.
Waste Disposal Auth., 358 F.3d at 952. We have found that a
final rule represents a logical outgrowth where the NPRM
expressly asked for comments on a particular issue or
otherwise made clear that the agency was contemplating a
particular change. For example, in Owner-Operator
Independent Drivers Ass’n v. Federal Motor Carrier Safety
Administration, 494 F.3d 188 (D.C. Cir. 2007), we considered
a rule that allowed long-haul truck drivers to satisfy their ten-
hour off-duty requirement in two separate resting periods as
long as one period was at least eight hours long. We
concluded that the final rule was a logical outgrowth of the
NPRM, which stated that “FMCSA will consider a variety of
possible changes . . . including . . . establishing a minimum
time for one of the two ‘splits,’ such as 5 hours, 8 hours, or
some other appropriate level.” Id. at 209–10. Similarly, in
City of Portland v. Environmental Protection Agency, 507
F.3d 706 (D.C. Cir. 2007), we concluded that a final rule
requiring uncovered reservoirs to be treated for a particular
parasite was a logical outgrowth of the proposed rule because
the NPRM expressly requested comments on whether the
agency should consider requiring cities to inactivate the
parasite. Id. at 715.
By contrast, our cases finding that a rule was not a logical
outgrowth have often involved situations where the proposed
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rule gave no indication that the agency was considering a
different approach, and the final rule revealed that the agency
had completely changed its position. For example, in
International Union, we concluded that a final rule setting a
maximum mine belt air velocity of 500 feet per minute was
not a logical outgrowth of a proposed rule providing that “[a]
minimum air velocity of 300 feet per minute must be
maintained.” 407 F.3d at 1259. We explained that “the
Secretary could not have expected interested parties to realize
that she would consider abandoning her proposed regulatory
approach . . . simply because she invited commentary on a
proposed rule that included a minimum air velocity.” Id. at
1260. We reached a similar result in Environmental Integrity
Project v. Environmental Protection Agency, 425 F.3d 992(D.C. Cir. 2005), in which EPA published a proposed rule
clarifying that a set of regulations operate independently of
one another. In its final rule, however, EPA adopted just the
opposite position, declaring that those regulations are in fact
not separate regulatory standards. Id. at 994–95. We rejected
EPA’s argument that it had satisfied its notice-and-comment
obligations by “repudiat[ing] its proposed interpretation and
adopt[ing] its inverse” in the final rule. Id. at 998.
This case presents a closer question. Although the
NPRM neither asked for comments on a particular issue nor
otherwise indicated that the Board was contemplating a
particular change, the final rule did not amount to a complete
turnaround from the NPRM. That said, we think this case far
more like those in which we found that agencies had failed to
give adequate notice. In essence, the Board contends that the
mere mention of the release of one-year data for comparison
groups gave notice that the amount of data available for that
purpose might change. We rejected just that argument in both
International Union and Environmental Integrity Project, and
we do so here as well. Although the NPRM proposed several
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revisions to the existing system, it nowhere even hinted that
the Board might consider expanding the number of years from
which comparison groups could be derived. Unlike the
notices in Owner-Operator and City of Portland, in which we
found that the final rules qualified as logical outgrowths, the
Board’s NPRM requested comments on no particular issue at
all. To be sure, expanding from one to four years’ worth of
data is less dramatic than adopting a maximum velocity cap
where a minimum was proposed (International Union) or a
completely different reading of a set of regulatory standards
(Environmental Integrity Project). Even so, we see no way
that commenters here could have anticipated which
“particular aspects of [the Board’s] proposal [were] open for
consideration.” Envtl. Integrity Project, 425 F.3d at 998(emphasis omitted); see also Fertilizer Inst. v. EPA, 935 F.2d
1303, 1312 (D.C. Cir. 1991). Indeed, were we to conclude
that commenters had notice merely because the NPRM
mentioned one year’s worth of data, the Board could issue
broad NPRMs “only to justify any final rule it might be able
to devise by whimsically picking and choosing within the four
corners of a lengthy ‘notice.’” Envtl. Integrity Project, 425
F.3d at 998. Such a rule would hardly promote the purposes
of the APA’s notice requirement.
We are similarly unpersuaded by the Board’s argument
that making private data available to verify the other two
benchmarks gave commenters notice that the same data would
be used to derive comparison groups. Although both the
NPRM and the final rule note that comparison groups will be
drawn from data released to the parties, neither makes clear
that the Board was referring to all data released to the parties
for any purpose. Indeed, the language regarding the release of
data appears in portions of the NPRM discussing comparison
groups, suggesting that it refers only to data released for that
purpose. Moreover, even under the Board’s broader reading,
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commenters could hardly be expected to pick this single
sentence out of a sixty-four page NPRM absent any indication
that the comparison group data might change.
To be sure, in retrospect we might be able to discern the
Board’s reasoning, i.e., that the railroads’ other unrelated
comments suggested keeping the four-year averages for two
benchmarks, that as a result the Board might release four-year
data, and that the four-year data might then be used to
calculate comparison groups. Under the APA, however,
notice must come from the NPRM. See 5 U.S.C. § 553(b).
Here, because nothing in the NPRM (1) indicated that the
Board might consider expanding the comparison group data
from one to four years, or (2) linked data released for other
purposes to the comparison groups, we are unable to conclude
that the final rule qualifies as a logical outgrowth of the
NPRM.
The Board next argues that even if we conclude that it
failed to give adequate notice, there is no reason to vacate the
rule because the change was neither prejudicial to the
railroads nor important. See 5 U.S.C. § 706 (requiring courts
to take “due account” of “the rule of prejudicial error”); First
Am. Discount Corp. v. Commodity Futures Trading Comm’n,
222 F.3d 1008, 1015 (D.C. Cir. 2000) (declining to decide
whether final rule represented a logical outgrowth where
petitioner suffered no prejudice); Transmission Access Policy
Study Group v. FERC, 225 F.3d 667, 729 (D.C. Cir. 2000)
(declining to apply logical outgrowth analysis to minor
change), aff’d New York v. FERC, 535 U.S. 1 (2002). In
support, the Board points out that the final rule allows parties
to demonstrate in individual cases that comparison
movements drawn from older data are “unreasonable.”
Although this is certainly true, the railroads’ point, with
which we agree, is that they were prejudiced by their inability
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to persuade the Board not to adopt the four-year rule in the
first place, thus requiring them to litigate the issue in
individual proceedings. “Had the Board given notice that it
proposed to include four years’ historical Waybill Samples,”
the railroads tell us, they “would have made additional
objections and presented significantly more (and different)
evidence (concerning, for example, changes in market
conditions over four-to-six year periods) to support those
objections.” Railroad Pet’rs’ Br. 10. The railroads also point
out that because the Board needs one to two years to gather
and release the data, see Decision at 84, expansion to four
years’ worth of data means that comparison groups could be
drawn from movements that are up to six years old, and older
data increases the “likelihood of distorted comparisons and
results.” Railroad Pet’rs’ Br. 12. We thus agree with the
railroads that the change from one year to four years’ worth of
data was important and potentially prejudicial.
III.
For the foregoing reasons, we conclude that the Board
failed to comply with the APA’s notice and comment
requirements. We therefore vacate (1) the portion of our
earlier opinion rejecting the railroads’ notice argument, see
CSX, 568 F.3d at 246–47, and (2) the portion of the final rule
that makes four years of data available for comparison groups,
see STB Ex Parte No. 646 (Sub-No. 1), at 83 (served Sept. 5,
2007); see also Allied-Signal, Inc. v. U.S. Nuclear Regulatory
Comm'n, 988 F.2d 146, 150–51 (D.C. Cir. 1993). We also
vacate the portion of our opinion rejecting the railroads’
argument regarding regulatory lag, see CSX, 568 F.3d at 247–
48, an issue we had no need to reach given our conclusion
here that the Board failed to provide the required notice.
So ordered.