State of Texas v. United States of America, and Interstate Commerce Commission , 866 F.2d 1546 ( 1989 )

ALVIN B. RUBIN and PATRICK E. HIGGINBOTHAM, Circuit Judges: ^*

Armstrong World Industries ships carpet from Georgia to a Texas warehouse. After a storage period, Armstrong ships the carpet onward from the warehouse to final destinations throughout Texas and in neighboring states. The ICC has issued a declaratory order holding that the carpet bound for Texas destinations moves in interstate commerce during its warehouse-to-destination trip. Texas wishes to regulate that trip, and challenges the ICC order on appeal. Texas asks us to hold that the ICC order is not final and hence unreviewable; that the ICC had no jurisdiction to enter the order; or, alternatively, that the ICC order must be reversed or vacated for both substantive and procedural defects. Finding no error, we deny the petitions to review and set aside the ICC’s order.

I

A. Nature of the Dispute

This complex case arises out of a discrepancy between interstate and intrastate trucking rates in Texas. Interstate trucking rates, regulated by the ICC, are cheaper. E & B Carpet Mills, a division of Armstrong World Industries, ships carpet from Georgia to a warehouse it owns in Arlington, Texas. E & B would like to transport carpets from the Arlington warehouse to E & B customers throughout Texas at interstate rates. Texas and various local transport firms would like to force E & B to use state-licensed carriers, charging the higher intrastate rates, on its runs out of the Arlington warehouse. Shippers, truckers, state regulators, and federal agencies have litigated similar wrangles over “hub-and-spoke” distribution systems for at least sixty years. See, e.g., Atlantic Coast Railroad v. Standard Oil of Kentucky, 275 U.S. 257, 48 S.Ct. 107, 72 L.Ed. 270 (1927); Public Service Comm’n v. Wycoff 344 U.S. 237, 73 S.Ct. 236, 97 L.Ed. 291 (1952).

This regulatory dispute turns upon whether the carpet “moves in interstate commerce” when it leaves the Arlington warehouse. Not surprisingly, both Texas and the ICC covet jurisdiction to adjudicate the meaning of “interstate” transportation in the first instance. Texas has initiated state court proceedings against E & B and Reeves, as is described in more detail below. Before those proceedings began, Armstrong went to the ICC and successfully sought a declaratory judgment construing the contested transport to be “interstate.” Texas in this suit seeks, in essence, either to mitigate on jurisdictional grounds any preclusive effect that the ICC ruling might otherwise have, or to have the ICC order reversed or vacated despite the absence of any jurisdictional infirmity. The juxtaposition of these substantive and jurisdictional disputes puts Texas in the very unusual position of appealing an ICC order to this court while maintaining, among other things, that we lack jurisdiction to hear the appeal.

B. The Distribution System

E & B Carpet Mills manufactures carpets in Dalton, Georgia, and Winchester, Tennessee. E & B ships the carpet manufactured in Tennessee to Dalton, where the carpet is stored for later distribution. In order to serve its Texas customers, E & B has since 1969 maintained a service center in Arlington, Texas. E & B ships carpet from Dalton, Georgia, to this Arlington “hub,” and then transports the carpet from Arlington to Texas customers (and to some customers in adjacent states) to meet demand.

Because the interstate or intrastate character of the Arlington-to-customer leg of E & B’s distribution scheme depends upon E & B’s “fixed and persisting” intent, or lack thereof, at the time the carpet leaves Dalton, the precise details of the shipping arrangement are important. About 31% of the carpet leaving Dalton for Arlington is designated at departure for a specific customer. The parties refer to such carpet as “sidemarked.” The remainder is “non-side-marked.” The parties agree that the side-marked carpet is in interstate commerce until it reaches the ultimate customer.

The non-sidemarked carpet usually sits in Arlington for between two to three months before being shipped on to customers. Over 90% of the carpet shipped to Arlington eventually goes to customers within Texas. Approximately 40% of the non-side-marked is cut in Arlington pursuant to customer order before being shipped from Arlington. The non-sidemarked carpet is shipped from Dalton to Arlington on the basis of E & B’s projections from its past dealing with its “major customers,” who account for 80% of E & B’s overall sales.

The transport arrangement that provoked this case developed after E & B’s business at its Arlington service center declined. The center used to handle nearly 70% of E & B’s transactions with Texas customers, but now handles only 35% of those transactions. This amount is 3% of E & B’s sales nationwide.

In order to counteract the decline in the Arlington center’s business, E & B developed a program under which it would quote customers a delivered rate for its carpet, a rate which would include the freight charges from Dalton to the customer. E & B initiated this program in June of 1984. Because E & B found that intrastate trucking rates were high, E & B employed Reeves Transportation Co. of Georgia, an interstate trucking firm specializing in the transport of carpet, to carry the carpet from Arlington at interstate rates. The Texas rates were about 38% higher than the interstate rates.

In order to take advantage of Reeves’ interstate rates, E & B marks its carpet as slated for “storage-in-transit.” The mark is made pursuant to the “storage-in-transit” provision in Reeves’ tariff: Item 910 in tariff ICC REEY 225. The effect of this marking is to designate the carpet as remaining “in transit” while it sits in the Arlington warehouse, so that the Dalton-to-Arlington-to-customer journey is regarded as one, continuous trip. Adding the “storage-in-transit” mark to the shipments apparently involves no cost to E & B, and has no effect on the handling of the goods shipped.

When the non-sidemarked carpet leaves Dalton, the bill of lading lists “Arlington” as the destination. Sometimes E & B employs Reeves to ship the carpet from Dalton to Arlington, but sometimes it uses other rail or motor carriers. All of the carpet, however, travels pursuant to the Reeves “storage-in-transit” mark.

Reeves presently handles approximately 14 percent of the traffic out of the Arlington hub bound for points outside the Dallas-Ft. Worth commercial zone. Approximately 32 percent of the carpet carried by Reeves from Arlington is bound for Texas destinations. The remaining 68 percent goes to out-of-state customers. Affidavit of William F. Johnson, Vice President of Reeves Transportation, at 3. The record does not indicate how much of the carpet carried by Reeves to Texas buyers is non-sidemarked. E & B apparently would like to ship more carpet out of Arlington via Reeves, but Reeves lacks the capacity. E & B cannot find any other interstate trucking firm willing to take the work. Armstrong World Industries, Inc. — Transportation within Texas, Docket No. MC-G-10963 (August 25, 1987) at 4-5.

The rest of the carpet shipped from Arlington moves on local carriers. All of the carpet moving to the Dallas-Ft. Worth metropolitan area, where Arlington is located, moves via local carriers. Approximately 85 percent of the shipments within the Dallas-Ft. Worth area move via Viking Freight Service, an unregulated, inexpensive local carrier. The shipments on Viking move pursuant to E & B’s “prepaid freight” program. Customer pickups and transport by customer-selected carriers account for the remaining 15 percent of the shipments within the Dallas-Ft. Worth area. Affidavit of John S. Pokrifcsak, Vice President of E & B Carpet Mills, at 8-9. In addition, 86 percent of the carpet shipped from Arlington to Texas points outside the Dallas-Ft. Worth commercial zone travels on intrastate carriers at intrastate rates.

When Reeves carries carpet from Arlington, the bill of lading lists “Arlington” as the initiation point. That bill of lading does not include any cross reference to the bill of lading that governed the carpet’s movement from Dalton to Arlington. The second bill does, however, refer to the carpet’s date of arrival in Arlington. E & B and the ICC claim that by using this date and a computer directory of shipping records, E & B and Reeves can match up incoming carpet shipments with outgoing shipments. E & B and the ICC claim that they do' so match up shipments. Texas and the various intervenors hotly contest this point, both on the grounds of possibility and on the grounds of actual practice.

C. Procedural History

Armstrong sought declaratory judgment from the ICC when, in March of 1985, Armstrong discovered that Texas had commenced an investigation of Reeves. Reeves joined in Armstrong’s petition. After Armstrong filed its petition, Texas filed a state court prosecution action against Reeves. Texas also intervened in the ICC proceedings, where it unsuccessfully sought a stay of those proceedings pending the outcome of its state court action. In 1986, the ICC ruled that the contested shipments were interstate. Armstrong World Industries, Inc. — Transportation within Texas, 2 I.C.C.2d 68 (1986). On the basis of this ruling, Armstrong moved in federal district court for an injunction barring Texas from pursuing its state court action against Reeves and for damages under § 1983. The ICC intervened on Armstrong’s behalf. The district court refused the injunction. No appeal was taken. One year later, the ICC again moved for an injunction, this time on its own initiative. The briefs do not reveal the status of this second attempt to bar the state court proceedings.

In October of 1985, Armstrong’s counsel exchanged letters with the ICC counsel. Armstrong sought the ICC’s intervention of the Texas state court proceedings. The ICC declined to intervene, preferring a federal forum. Exhibit 45, Appellant’s Record Excerpts. Texas now claims that this exchange of letters constitutes impermissible ex parte communications. Texas further claims that the ICC and Armstrong imper-missibly exchanged drafts of pleadings for the August 1986 § 1983 suit against Texas.

While the first (Armstrong’s) district court motion to stay the state court proceedings was pending, Texas, together with Central Freight Lines, Red Arrow Freight Lines, and the Alabama Public Service Commission, moved to reopen the ICC proceedings which declared Reeves’ shipments from Arlington to be interstate in character. The motion to reopen was denied in August, 1987. Armstrong, Inc. — Transportation within Texas, No. MC-C-10963 (1987). Texas then appealed the original ICC determination to this court. That is the case now before us.

II

A. Finality

If the ICC order is not final and hence not reviewable, we should decline jurisdiction on that ground rather than resolving complex questions about the ICC’s jurisdiction. Texas relies heavily on two cases, City of Miami v. Interstate Commerce Commission, 669 F.2d 219 (6th Cir. Unit B 1982), and Public Serv. Comm’n. v. Wycoff, 344 U.S. 237, 73 S.Ct. 236, 97 L.Ed. 291 (1952). Neither case will sustain a general rule holding that ICC declaratory judgments construing the scope of an interstate certificate are advisory, not final, or in any other respect not reviewable.

Wycoff dealt with a “hub” distribution system very similar to that contested here. Utah allegedly threatened to prosecute the trucker handling the hub-to-customer shipments for failure to obtain an intrastate license. The trucker sought declaratory judgment holding his license authorized the contested transport, but proceeded in federal district court, pursuant to 28 U.S.C. § 2201, rather than proceeding before the ICC. The court dismissed for want of a case or controversy. The case or controversy requirement does not restrict an agency’s authority to issue declaratory rulings under 5 U.S.C. § 554(e) (authorizing agencies to “issue a declaratory order to terminate a controversy or remove uncertainty”).

In City of Miami, a panel of the soon-to-be-Eleventh Circuit held a particular ICC declaratory judgment not reviewable because it did not determine any “rights or obligations.” The ICC order in question construed a terminal facility, which was the subject of municipal condemnation proceedings, to be a “line of railroad.” The court held that the order was better regarded as advisory, rather than declaratory, because the issue of the facility’s status should be litigated before the ICC in connection with an application to abandon service, 669 F.2d at 221-22. The court specifically noted that its decision applied to this particular declaratory order, and did not imply that ICC declaratory orders in general were not reviewable. Id. at 222.

ICC orders are clearly reviewable when those orders affect the rights of the parties, or when the rulings touch “vital interests of carriers and shippers.” Frozen Food Express, Inc. v. United States, 351 U.S. 40, 44, 76 S.Ct. 569, 571, 100 L.Ed. 910 (1956); Weinberger v. Hynson, Wescott & Dunning, 412 U.S. 609, 625-27, 93 S.Ct. 2469, 2480-82, 37 L.Ed.2d 207 (1973). The ICC characterizes its declaratory order as intending “to do no more than determine the legal consequences of the factual predicate presented by Armstrong and Reeves.” ICC Brief at 36. The order does not purport “to determine whether every individual shipment has moved lawfully in interstate commerce pursuant to Reeves’ certificate.” Armstrong II, No. MC-C-10963 at 8. As a result, the order would not protect Reeves from a state law regulatory proceeding if Texas were to prove facts different from those supposed by the declaratory order. This possibility does not, however, detract from the finality of the order, for it does not imply that the order settles no rights. The order assures Reeves that if it can prove a certain set of facts, Reeves may reasonably rely on its interstate certificate as authorization for its actions. As such, the order settles rights and removes uncertainty as contemplated by the Administrative Procedure Act.

In summary, the ICC’s declaration regarding Reeves’ transport authority is final and reviewable if it determines the rights of Reeves and other parties to the declaratory hearing. The declaration will affect those rights unless the ICC was without jurisdiction to issue the order, or unless the issues addressed by the declaration order will be dispositively settled by a later ICC proceeding. Thus if the order here is not reviewable, it is unreviewable only because the ICC lacks jurisdiction to adjudicate the scope of interstate commerce, or because Armstrong acted prematurely at the time it sought ICC judgment. With Wycoff and City of Miami properly understood, the finality issue thus becomes intertwined with the jurisdictional questions discussed below.

B. ICC Jurisdiction

Texas contends that the ICC lacked jurisdiction to issue the declaratory order sought by Armstrong. To resolve this jurisdictional issue, we must determine the breadth of the Supreme Court’s holding in Service Storage & Transfer Co. v. Virginia, 359 U.S. 171, 79 S.Ct. 714, 3 L.Ed.2d 717 (1959), wherein the Court decided that the ICC had primary jurisdiction over certain disputes about the scope of ICC certificates. In Service Storage, a Virginia trucker operating pursuant to an ICC license was transporting goods from a Virginia initiation point, to a West Virginia gateway, and then back into Virginia to a Virginia destination. Virginia commenced criminal proceedings against the carrier for conducting intrastate trucking without a Virginia license, claiming that the West Virginia border-crossings were merely a device for evading state jurisdiction. After Virginia began its proceeding, but before Virginia rendered a decision, the trucker sought and obtained an ICC judgment construing the trucker’s certificate to authorize the contested travel. The Virginia State Supreme Court affirmed the trucker's state law conviction, and the United States Supreme Court unanimously reversed, saying,

It appears that interpretations of federal certificates of this character should be made in the first instance by the authority issuing the certificate and upon whom Congress has placed the responsibility of action. The Commission has long taken this position ... conflicts [between state and national authorities] can best be avoided if the interpretation of I.C.C. certificates is left to the Interstate Commerce Commission.

359 U.S. at 177-78, 79 S.Ct. at 718.

Texas attempts to distinguish Service Storage by arguing that, while there was no doubt that the shipments in Service Storage crossed state lines, the shipments in this case are “on their face intrastate.” This argument fails. By directing attention to the character of the shipments involved, Texas invites us to decide the jurisdictional issue by pre-judging the substantive question. Service Storage expressly states that “interpretations of federal certificates” should be made by the issuing agency. A judgment about the superficial merits of a claim goes to the proper disposition of the claim, rather than to jurisdictional authority to dispose of the claim at all.

In any event, the issues in Service Storage and this case are not as distinct as Texas argues. In both cases, there is no doubt that the goods being transported have crossed state lines: in this case, the lines are the various borders between Dalton and Arlington; in the earlier case, the line was the Virginia/West Virginia border. In both cases, the issue is whether the undisputed border crossings suffice to make certain portions of the journey — within Texas in this case, within Virginia in the earlier one — interstate rather than intrastate.

The brief of intervenor the Teamsters Union makes a related argument for narrowing the principle of Service Storage. The Union claims that in Service Storage the ICC was interpreting the language of the certificate, rather than the scope of interstate commerce, because the transport at issue in Service Storage crossed the West Virginia state line and so was clearly interstate. The Union contends that the ICC should have jurisdiction to interpret the scope of the certificate it issues, but not to adjudicate the limits of its own jurisdiction. This argument, however, cannot be reconciled with the Supreme Court's description of the issues in Service Storage. The Supreme Court said the ICC certificate “on its face covers the whole operation,” 359 U.S. at 177, 79 S.Ct. at 718; the crucial issue that divided Virginia and the ICC was whether or not the transport was in fact intrastate rather than interstate. 359 U.S. at 178, 79 S.Ct. at 718.

This circuit’s decision in Merchants Fast Motor Lines, Inc. v. ICC, 528 F.2d 1042 (5th Cir.1976), further diminishes whatever force Texas’ arguments might otherwise have. Merchants and the State of Texas sought to contest an ICC order authorizing an interstate carrier, Whitfield, to transport goods over a route from Dallas to El Paso, entirely within Texas. Whitfield had previously used a route that was geographically interstate: the previous route crossed into New Mexico. The ICC endorsed the more direct route as a “permanent alternative route.” As in this case, Texas, joined by the competing carrier, challenged the ICC’s jurisdiction. Texas claimed that because the Dallas to El Paso route was entirely within Texas, the ICC could not authorize transport over that route. We rejected this argument, reasoning that traffic on a route may be interstate in character even if the route itself is geographically intrastate. 528 F.2d at 1044. Moreover, we explained that if Merchants believed that the traffic on the route was in fact intrastate, the proper forum for Merchants’s complaint was the ICC. 528 F.2d at 1045. Texas brings precisely the same jurisdictional challenge in this case., and the challenge meets the same fate. The fact that a route is geographically intrastate does not imply that traffic on the route is intrastate in character, and the character of the traffic is a question within the ICC’s primary jurisdiction.

Texas does not cite any cases to support its interpretation of Service Storage, and the cases it cites on the more general topic of the ICC’s jurisdiction fail to narrow or undermine the Service Storage rule. Louisiana Public Service Commission v. Federal Communications Commission, 476 U.S. 355, 106 S.Ct. 1890, 90 L.Ed.2d 369 (1986), reviewed an FCC order declaring that federal law pre-empted state regulation of depreciation of telephone company property. The Communications Act of 1934 authorized the FCC to regulate interstate telecommunications while preserving local authority over intrastate telecommunications. The resulting division of authority is very complex, since telephone lines, switchboards, and similar equipment are used for both interstate and intrastate communications; telephone lines are not so much interstate or intrastate in character, as they are both. In the order contested in Louisiana Public Service, the FCC claimed exclusive authority to regulate the depreciation of facilities, arguing that allowing states to regulate depreciation of those facilities would undermine FCC policy.

A Fourth Circuit panel affirmed the FCC order, but the Supreme Court reversed, holding that the Act expressly barred the FCC from regulating the intrastate aspect of telecommunications. But the Court did not hold that the FCC lacked authority to determine, in the first instance, how much of a particular facility was interstate, rather than intrastate. Indeed, the Court observed that the Communications Act expressly provided for a process, governed by federal law, for resolving disputes about the distinction between interstate and intrastate telecommunications. 47 U.S.C. § 410(c); see Louisiana Public Service, 106 S.Ct. at 1902. In this case, we do not deal with an attempt by the ICC to regulate anything that the ICC itself concedes to be intrastate commerce: rather, the ICC claims that the contested commerce at issue here is interstate, not intrastate. If the ICC has mistakenly or deliberately misconstrued the distinction so as to expand its own jurisdiction, that is a substantive, rather than a jurisdictional, defect in its treatment of Armstrong’s petition.

In the end, Texas’ use of Louisiana Public Service turns upon the same erroneous premise that governed its interpretation of Service Storage. Texas claims that the ICC is trying to regulate intrastate commerce because Reeves’ trips from Arlington are “facially” or “manifestly” intrastate. Texas is trying to put the cart before the horse: these arguments go to the substance, rather than the jurisdictional basis, of the ICC decision.

Texas also relies again on Public Service Commission v. Wycoff, 344 U.S. 237, 73 S.Ct. 236, 97 L.Ed. 291 (1952). Texas quotes a passage from that opinion, saying:

It is the state courts which have the first and last word as to the meaning of the state statutes and whether a particular order is within the legislative terms of reference so as to make it the action of the State.

344 U.S. at 247, 73 S.Ct. at 242. Wycoff h distinguishable on several grounds. First, as already mentioned, it dealt with the “case or controversy” requirement applicable to petitions for declaratory judgment in the federal courts, rather than in federal agencies. Second, the quoted passage refers to “state statutes.” Third, to the extent that one may draw inference from Wycoff about the ICC’s authority, those inferences are dicta only; the issue of the ICC’s authority vis-a-vis the states was clearly presented in the later Service Storage case.

We therefore hold that Service Storage governs this case. The Eighth Circuit recently reached the same conclusion. Middlewest Motor Freight Bureau v. ICC, 867 F.2d 468 (8th Cir.1989).

Once the authority of Service Storage is recognized, the only remaining jurisdictional issue arises out of the question as to when the federal licensee should appropriately petition the ICC for judgment. In Service Storage the trucker petitioned for an ICC interpretation of its license after Virginia initiated proceedings against it; here, Armstrong sought declaratory judgment before the state court action was filed. Yet to require that Armstrong delay its petition to the ICC until Texas begins a prosecution would frustrate the purposes of the Administrative Procedure Act, 5 U.S. C. § 554(e), which authorizes agencies to issue declaratory orders to settle controversies or remove uncertainty. The effect of such a rule would be to perpetuate ambiguity and increase the potential liabilities of interstate carriers. Because the ICC will have primary jurisdiction to adjudicate the scope of an ICC certificate, nobody is disadvantaged by permitting a carrier (or shipper) to obtain the judgment of the ICC as soon as it became clear that a state regulator disputes the carrier’s own interpretation of its license.

Ill

We first dispose of three challenges to the procedural integrity of the ICC proceedings. Texas raises two arguments. Texas asks us to vacate the ICC’s order on the ground that the ICC was biased, or alternatively on the ground that the ICC received improper ex parte communications from Armstrong. Both of these arguments arise out of litigation in which the ICC sought to preserve its jurisdiction to decide the character of the contested transport in this case. We find no merit in the arguments advanced by Texas.

On the issue of bias, Texas contends that the ICC’s participation in Armstrong’s § 1983 suit, intended to halt and obtain damages for a Texas regulatory proceeding, created both an appearance of bias and actual bias. Texas’s position overlooks two crucial points: the difference between judicial and administrative adjudicators, and the distinction between jurisdictional and substantive issues in this case. First, agencies, unlike judges, actively formulate and defend the policies which inform their adjudications. The presence of the ICC as a party litigant in this appeal testifies to this difference: one could not imagine a district judge appearing to argue the merits of her decision, but it is reasonable, and common, for a government agency to argue the merits of its own opinion on appeal. To say (as the logic of Texas’s argument would force us to do) that the ICC’s appearance before this Court would eliminate the possibility of a remand — because the ICC is biased by its own legal argument— would frustrate the entire system of administrative adjudication. The modern regulatory agency occupies an uneasy position under a Constitution that recognizes only three distinct branches, but a comprehensive challenge to the agency’s constitutional station, even if not foreclosed by Supreme Court precedent, cannot go forward disguised as a more specific argument about bias.

Second, even if we were able to recognize bias of the form Texas describes, it would not exist in this case. The ICC may protect its own jurisdiction to decide the character of commerce without prejudicing the exercise of that jurisdiction. The argument urged by Texas again assumes that because the route travelled by the carpet is geographically intrastate, the ICC’s effort to exercise jurisdiction is itself an endeavor to regulate intrastate commerce and so presupposes a judgment upon the nature of the commerce. This reasoning is doubly confused. The jurisdictional question is about who decides whether the commerce is interstate, not about whether the commerce is in fact interstate. The substantive question, to be decided by whatever body has jurisdiction, is whether the commerce is interstate in character. The fact that the route travelled is geographically intrastate is completely irrelevant to the first question, and far from dispositive of the second.

Texas fares no better on the ex parte communications point. As Texas recognizes, an ex parte communication is prohibited by the Administrative Procedure Act only if the communication is “relevant to the merits of the proceeding.” See 5 U.S.C. § 557(d). For the reasons explained above, we agree with the ICC that no ex parte communications took place, because all of the allegedly ex parte communications dealt with the jurisdictional issues, rather than with the merits. Texas raises other serious objections to the characterization of the communications as ex parte communications. We do not need to reach these arguments, and express no opinion upon them.

Not surprisingly, Texas cites no case, either dealing with ex parte communications or dealing with agency bias, that is factually similar to this case. Texas relies heavily on Gibson v. Berryhill, 411 U.S. 564, 93 S.Ct. 1689, 36 L.Ed.2d 488 (1973), where a state optometry board was disqualified, because of bias, from conducting a review proceeding after having filed and lost a state court action against the optometrists subject to the review proceeding. Gibson is easily distinguishable from this case. First, the state board was composed entirely of practicing optometrists with personal financial interests directly adverse to those they proposed to review. The Supreme Court upheld the injunction against the board proceeding on this ground alone, without reaching the possibility of bias resulting from the earlier state court action. 411 U.S. at 578-79, 93 S.Ct. at 1698. Second, the state suit filed by the board was a purely substantive challenge to the practice of some optometrists, not an attempt to protect the board’s own jurisdiction (indeed, the board stayed its own proceeding in order to file the suit).

An intervenor, the Texas Intrastate Carriers, raises a third procedural objection. The Carriers contend that the ICC erred by failing to provide an oral hearing and allow for the cross-examination of witnesses. We disagree. The Supreme Court has concluded that the term “hearing” as used in the Administrative Procedure Act “does not necessarily embrace either the right to present evidence orally and to cross-examine opposing witnesses, or the right to present oral argument to the agency’s decision-maker.” United States v. Florida East Coast Ry. Co., 410 U.S. 224, 240, 93 S.Ct. 810, 818, 35 L.Ed.2d 223 (1973). In the proceedings we now review, the ICC, by its own description, determined the legal significance of a fact pattern presented by Armstrong and Reeves. The ICC did not determine whether any particular shipment conformed to that fact pattern. Under these circumstances, we believe that the “paper hearing” conducted by the ICC provided all parties with adequate opportunity to comment, and so conformed to the APA’s hearing requirements.

IV

A.

The ICC’s declaratory order was issued after an informal adjudication¹ pursuant to the authority conferred by 5 U.S.C. § 554(e) to “issue a declaratory ruling to terminate a controversy or remove uncertainty.” Rendered in a specific factual context and resolving only the question presented by Armstrong’s and Reeves’s petitions, it “belongs to the genre of adjudicatory rulings.”²

Although the intervenors suggest that we apply various more exacting standards of review, such adjudications are subject to judicial review only to determine whether they are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”³ This gives us no license to substitute our own opinion for the ICC’s, but limits our inquiry to considering whether its conclusions are rationally supported.⁴ More activist and intrusive review would increase judicial control of the independent agency’s adjudicatory function, violating the precepts of the APA and trenching on the role in regulating interstate commerce that Congress imparted to the ICC.

B.

The challengers accept the ICC’s general approach to determining whether goods move in interstate or intrastate transit. As the ICC has stated, “It is well settled that characterization of transportation between two points in a State as interstate or intrastate in nature depends on the ‘essential character’ of the shipment. Crucial to a determination of the essential character of a shipment is the shipper’s fixed and persisting intent at the time of shipment.” ⁵ What the challengers contest is the relative importance the ICC gave to various facts and circumstances surrounding the transportation in ascertaining the shipper’s fixed and persisting intent.

The ICC began its analysis by recognizing that the presence of common incidents of through carriage, such as through billing, uninterrupted movement, continuous possession by the carrier, or unbroken bulk, may indicate an interstate shipment. However, it explained that the presence of these elements is not a prerequisite to characterizing the movement as interstate. It found the existence of a transit privilege under which the traffic moves, though not dispositive, to be a strong indication of the character of a movement, diminishing the relative significance of the other factors.

After analyzing its own decisions and various opinions of the Supreme Court and federal circuit courts, the ICC concluded that Armstrong intended, at the time the carpet left Dalton, Georgia, to move it to destinations beyond the Arlington warehouse, destinations that involved an interstate movement from the point of shipment. Relying on the fact that the carpet moved under Reeves’s storage-in-transit provision and that it was not “processed or commingled in any way to cause it to lose the identity it had when it left Dalton,” the ICC found the transportation of non-side-marked carpet by Reeves within Texas under Reeves’s storage-in-transit provision to have been part of a continuous interstate movement.⁶ The ICC noted, but found unimportant, that the ultimate destination and consignee of each particular Armstrong shipment was not known at the time the carpet left Georgia, separate bills of lading were issued for the prior and subsequent movements of the carpet, the carpet returned to Armstrong’s possession at the Arlington warehouse, and some of the carpet was cut at the warehouse.⁷

The intervenors claim that the ICC’s order is inconsistent with federal decisions and the ICC’s cases. An agency, however, is not bound by the shackles of stare decisis to follow blindly the interpretations that it, or the courts of appeals, have adopted in the past.⁸ When, as here, an agency purports to follow earlier judicial constructions of the Act, we review only whether its interpretation of the precedents is reasonable. The question is not whether we would construe the precedents as the ICC did, but whether its construction is a tenable one. Similarly, although agency actions, as distinguished from adjudicatory decisions, are not precedents in the sense of being binding authority, when an agency departs from what it has previously done, it must acknowledge the difference and explain its departure.⁹

The intervenors’ primary contention is that the ICC placed undue importance on Reeves’s storage-in-transit provision in determining that the trip from Arlington to the ultimate Texas destinations was interstate in nature. They argue that several other factors deserve consideration in determining the interstate nature of a hub-to-spoke trip, but that the ICC treated a single factor, the storage-in-transit provision, as dispositive. Furthermore, they urge us to find that because the final destination was not known at the time the carpet left Georgia, Armstrong could not have intended that the trip from the Arlington warehouse to the final Texas destination to be interstate.

The intervenors rely on the Supreme Court decision in Atlantic Coast Line Railroad Company v. Standard Oil of Kentucky,¹⁰ and other Supreme and circuit court decisions¹¹ for the broad proposition that before a shipper can intend that goods move continuously in interstate commerce, the shipper must know their final destination. None of these cases, however, involved storage-in-transit arrangements. As the ICC explained, these decisions are therefore not relevant, or, at least, not dispositive, when, as in Armstrong’s case, the shipment is pursuant to a storage-in-transit provision.¹² The ICC supported this distinction by noting that in Surles v. Contract Carriers Application, it had specifically pointed out that the case did not involve “ ‘joint rates, ... provisions for storage in transit, or any other arrangements between the carriers for a continuous shipment from origin points to any place beyond the point of [initial] delivery.’ ”¹³ Other ICC decisions also refer to the lack of any through arrangement or method involving continuity of transportation.¹⁴ Thus the ICC reasonably distinguished between two lines of cases — those involving storage-in-transit provisions and those that did not.

Furthermore, in Atlantic Coast Line the shipments were to warehouses run by local, independent wholesalers, who themselves designated the final destination of the cargo.¹⁵ The Supreme Court explained the importance of this fact in determining whether shipments out of the warehouse were the continuations of an interstate movement:

Neither the sellers, who deliver the oil, nor the railroad company, that aids the delivery of the oil to the storage tanks and tank cars at the seaboard, has anything to do with determining what the ultimate destination of the oil is.... ¹⁶

In contrast here, E & é, the out-of-state shipper, determines the final destination.

In Baltimore & O.S.W.R.R. Co. v. Settle,¹⁷ the Supreme Court found transit privileges strong evidence of the shipper’s intention to ship goods in interstate transit despite the presence of a storage interval and the absence of other customary incidents of that intent, such as through billing, uninterrupted movement, continuous possession, or unbroken bulk.¹⁸ The Court stated, “in many cases involving transit or reconsignment privileges in blanket territory, most or all of these incidents are absent and yet through interstate tariffs apply.” ¹⁹ As the ICC noted, “the {Settle ] Court also observed that shipments from a distribution point following an interstate movement are often deemed a separate intrastate movement if the applicable tariffs do not confer reconsignment or transit privileges.” ²⁰

The ICC also found support in its own decisions finding that the existence of appropriate transit arrangements supported the characterization of shipments in the final leg of two separate movements to be interstate.²¹ In Commercial Oil Transport Extension — Jacksonville, Ill.,²² the ICC relied on such transit arrangements to conclude that the wholly intrastate movement from plant to final destination was in interstate commerce. The traffic in Commercial Oil moved from out-of-state to a shipper’s plants in Illinois, whence, after processing, it moved to other points in Illinois. The ICC explained, “shipments of this character standing alone would be regarded as separate and distinct shipments, but the existence of appropriate transit arrangements covering movements into and out of the sites of the shippers’ plants is deemed to be sufficient to convert these otherwise separate movements into a through interstate movement.”²³ Similar results were reached in Commercial Oil Transport Extension — Oils,²⁴and Oilfield Equipment To and Between the Southwest,²⁵

In Railroad Commission of Texas v. Oil Field Haulers Association,²⁶ the ICC held that pipe transported from out-of-state by motor carriers pursuant to storage-in-transit arrangements to storage yards in Texas continued to move in interstate commerce during subsequent trips from the storage yards to the ultimate Texas destinations. At the time the pipe was stored, the ultimate consignee and destination were unknown. Either the shipper or the consignee designated the ultimate destination of the pipe to the carriers, who maintained the yards. In Armstrong, the ICC quoted this statement from Oil Field Haulers:

The record clearly indicates that all the pipe does in fact move beyond the transit point, and that it is the intent of the shipper that the movement from origin to ultimate destination constitutes one continuous movement. Merely because the exact identity of a particular consumer is unknown is of no moment. As has often been stated, transit rests upon a fiction that the incoming and outgoing transportation services, which are in fact distinct, constitute a continuous shipment of the identical article from point of origin to final destination.²⁷

The Regular Common Carrier Conference, one of the intervenors, asserts that the ICC erroneously relied on Oil Field Haulers because the shipments in that case never left the carriers’ control and were stored in the carriers’ facilities. The ICC recognized this distinction, but concluded, “The critical element is the shipper’s intent at the time the goods are initially shipped, as strongly evidenced by use of the transit privilege. The ownership or control of the in-transit storage facility, with one exception to be discussed infra, has no bearing on the shipper’s intent at the origin point.”²⁸ The exception related to goods transported to a shipper-controlled warehouse in the same state when only part of the goods is later shipped to interstate destinations. In such cases, reasoned the ICC, the ownership of the transportation facility, rather than the storage-in-transit privilege, is more determinative of the nature of the transit.

The ICC recognized, but distinguished, a Ninth Circuit case that attached some significance to the ownership of the storage facility. In Southern Pacific Transportation Company v. ICC,²⁹ Del Monte shipped canned goods from California processing plants to a warehouse in Stockton, California, obviously an intrastate movement. After arriving in Stockton, some of the goods were shipped to California destinations while others were shipped across state lines. All of the goods traveled to the warehouse from the processing plants pursuant to transit privileges, enabling Del Monte to ship the goods according to the lower through rate if the goods were subsequently shipped across state boundaries. The ICC prohibited some small carriers, employed by Del Monte to transport goods on the plant-to-warehouse journey, from continuing to provide those services. The carriers lacked interstate operating authority, and the ICC determined that because the goods moved under the transit privilege, the goods were in interstate commerce even though the plant-to-Stockton trip took place entirely within California.

The Ninth Circuit set aside the ICC’s order, finding that no “fixed and persisting intent” to put the goods into interstate commerce existed before the goods arrived at the warehouse, since some of the goods never left the state. “Inasmuch as it cannot be determined whether goods are committed to interstate or foreign commerce until they are shipped from the warehouse, the Commission’s decision would lead to retroactive imposition of its jurisdiction, turning on whether particular goods are committed to interstate or foreign commerce upon subsequent shipment.”³⁰

In Armstrong, the ICC acknowledged that the Ninth Circuit had distinguished Southern Pacific from Oil Field Haulers on the basis that the carriers maintained the storage yards in Oil Field Haulers and the shipper maintained them in Southern Pacific.³¹ The ICC found the concern in Southern Pacific with control of the warehouse, however, to have been based on the fact that when a shipper controls a warehouse in the state in which the goods originate, and some never leave that state, the shipper might use interstate rates to transport goods that will never leave the state. It explained:

This concern does not exist here, so there is no need to place dispositive emphasis on the ownership of the storage facility. None of the carpet transported to the Arlington service center has a Texas origin. Consequently, there exists no opportunity to commingle local and interstate freight. Each and every shipment from Arlington has had a prior out-of-State movement, and under the terms of the applicable tariff it must be matched with its counterpart by bill number. This distinction is sufficient to make the Southern Pacific case non-controlling here.³²

This interpretation of Southern Pacific is reasonable. Shipments that move from a factory in state A to a warehouse in state A, when some of it is never shipped out of that state, are not analogous to shipments from state A to a warehouse in state B, when some of it later moves to final destinations within state B. In the former case, goods bound for local markets are commingled with goods bound for interstate markets, with the potential for deviously using interstate storage-in-transit privileges on the initial part of the trip. In the later case, all goods are bound for interstate markets, and there is no potential for manipulative commingling. As we have explained,

It is well settled that, in determining whether a particular movement of freight is interstate or intrastate or foreign commerce, the intention existing at the time the movement starts governs and fixes the character of the shipment. If the shipment comes to rest within the state of origin and the goods are thereafter disposed of locally, the interstate character of the shipment is lost, but temporary stoppage within the state, made necessary in furtherance of interstate carriage, does not change its character.³³

The market for all of the carpet shipped by E & B from Georgia is in another state, Texas. The fact that some of the carpet stored in Arlington will move by intrastate carriers because more interstate carriers are not available does not implicate the concern that interstate and intrastate goods are being commingled in a warehouse in order to use an interstate transit for transporting goods to a purely intrastate market. E & B intends that all its goods travel to final destinations in Texas via the storage-in-transit provision. The fact that its intent is partially thwarted because Reeves lacks sufficient equipment to handle all the traffic does not destroy Armstrong’s intent with regard to the traffic actually handled by Reeves.

In Burlington Northern, Inc. v. Weyer-haeuser Company³⁴ the Ninth Circuit recognized the distinction relied on by the ICC between cases in which the initial shipment to a warehouse is from out-of-state and those in which the initial shipment is from within the same state. In Burlington Northern, the shipper directed goods to a warehouse within the state of origin. It then shipped most, but not all, of the goods out-of-state. The shipper did not decide the final destination until the goods reached the warehouse. Burlington Northern distinguished this agenda from the agenda when goods originate out-of-state, are stored until sold, and are ultimately shipped to final destinations within the warehouse state. Thus, in Long Beach Banana Distributors v. Atchison, Topeka & Santa Fe Railway Company,³⁵ the Ninth Circuit held that the entirely intrastate leg of a trip in which the goods first crossed a state line was in interstate transit because, even though the ultimate destination was not known when the goods were initially shipped, “[t]he essential character of the transportation was foreign.”³⁶ The Burlington Northern court found the distinction significant because in Burlington Northern, the shipper “could not designate with certainty at the [storage] yards which logs would eventually be exported.”³⁷ Thus the Ninth Circuit’s cases support the interpretation the ICC used in Armstrong.

Determining the existence of the requisite “fixed and persisting” intent to move goods in interstate commerce turns in significant part on factual context of each case. In Southern Pacific, for example, the shipper was not a party to the action. None of its employees testified about the shipper’s purpose or intent and the shipper offered no evidence about its actual business practices. As a Minnesota district court has noted, “Despite rather broad dicta, the holding in Southern Pacific rests upon the fact that the eligibility of goods for transit privileges was insufficient evidence to establish that the essential character of the commerce in question was interstate.” ³⁸ In contrast, both the shipper and carrier were parties to the petition for a declaratory order in this case, and submitted evidence about their practices and intent in shipping carpet from Georgia.³⁹

Contrary to the contention of some of the intervenors, the ICC did not decide that the use of a storage-in-transit privilege was dispositive of the interstate nature of the movement. The ICC noted that it was a “strong indication” of the through character of a movement,⁴⁰ but relied in addition . on the “incidents” surrounding the involved transportation. Without discussing them in detail, the ICC noted such indicia as the tracking and documentation linking the shipments coming in and going out of Arlington,⁴¹ and the fact that the goods are not processed, other than being cut to specification, at the temporary storage point.⁴²

We conclude that the ICC did not fail to follow any of its cases, nor did it unreasonably construe federal caselaw. It recognized the various cases that might suggest a different result and distinguished each case on solid ground. We find, therefore, that the ICC was not arbitrary or capricious in deciding that the movement from Arlington via Reeves carriers to final destinations within Texas was interstate in nature.

C.

Finally, intervenors Central Freight Lines and Regular Common Carrier Conference contend that Reeves’s transit provision is invalid because the freight involved does not move over a through route at a through rate. Because these parties did not raise this issue before the ICC, however, they are foreclosed from raising it here.⁴³ The language in their Supplemental Petition to Reopen in which they argued that the transit privilege was a “sham” does not constitute a claim that Reeves misused the transit privilege. Any challenge to the bona fide nature of the Reeves transit provision should be made before the ICC.

V.

In this opinion, we have attempted to clear a path through the thicket of issues presented by the parties. To guide future travelers, we summarize our holdings.

Whether commerce is interstate, and subject to ICC regulation, or intrastate, and subject to Texas regulation, depends upon the “fixed and persisting intent” of the shipper. A carrier or shipper involved in a particular hub-and-spoke distribution system may be uncertain about the characterization of a certain movement, or a state may subject a carrier to regulatory proceedings with regard to transportation that the carrier believes to be interstate. If so, the shipper or carrier, as the case may be, may ask the ICC to determine the character of the contested transportation. That was the course taken in Service Storage. The ICC has primary jurisdiction to decide that question. If the ICC does so, the resulting order is final and reviewable. Upon review, we will defer to the ICC’s judgment unless it is arbitrary or capricious. The ICC’s order, of course, will be dispositive only as applied to the same fact pattern that formed the basis for the declaratory order. If the ICC chooses to litigate to protect its jurisdiction, its engagement does not of itself compromise the ICC’s power to exercise that jurisdiction.

In this case, the ICC has applied the “fixed and persistent intent” rule reasonably in deciding that when the shipper involved transports goods across state lines to a hub warehouse pursuant to a storage-in-transit privilege, the later hub-to-customer transport was still interstate in character, even though it did not again cross state lines.

For these reasons, the petitions to review and set aside are DENIED.

* Judge Higginbotham is the author of parts I, II, and III of this opinion. Judges Thornberry and Rubin join in these parts. Judge Rubin is the author of Parts IV and V of the opinion in which Judge Thornberry joins. Judge Higginbotham dissents from Parts IV and V and from the judgment.

1 . Armstrong World Industries, Inc., 2 I.C.C.2d 63, 75 (1986).

2 . Loveday v. Federal Communications Comm'n, 707 F.2d 1443, 1447 (D.C.Cir.), cert. denied, 464 U.S. 1008, 104 S.Ct. 525, 78 L.Ed.2d 709 (1983).

3 . 5 U.S.C. § 706(2)(A); see Middlewest Motor Freight Bureau v. ICC, 867 F.2d 458, 460 (8th Cir.1989); Loveday, 707 F.2d at 1447-48; see also Pennsylvania Pub. Util. Comm'n v. United States, 812 F.2d 8, 10 (D.C.Cir.1987).

4 . See United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, 749, 92 S.Ct. 1941, 1946, 32 L.Ed.2d 453 (1972).

5 . Armstrong, 2 I.C.C.2d at 69 (emphasis added) (citing Texas & N.O.R. Co. v. Sabine Tram Co., 227 U.S. 111, 33 S.Ct. 229, 57 L.Ed. 442 (1913) and Baltimore & O.S.W.R. Co. v. Settle, 260 U.S. 166, 43 S.Ct. 28, 67 L.Ed. 189 (1922)).

6 . Armstrong, 2 I.C.C.2d at 74.

7 . Id.

8 . See Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837, 863-64, 104 S.Ct. 2778, 2792, 81 L.Ed.2d 694 (1984).

9 . K. Davis, 4 Administrative Law Treatise § 20:11 (1983); cf. Frozen Food Express, Inc. v. United States, 535 F.2d 877, 880 (5th Cir.1976).

10 . 275 U.S. 257, 48 S.Ct. 107, 72 L.Ed. 270 (1927).

11 . E.g., Walling v. Jacksonville Paper Co., 317 U.S. 564, 63 S.Ct. 332, 87 L.Ed. 460 (1943); Burlington Northern, Inc. v. Weyerhaeuser Co., 719 F.2d 304 (9th Cir.1983); Determination of Jurisdiction Over Transportation of Petroleum & Petroleum Products by Motor Carriers Within a Single State, 71 M.C.C. 17 (1957); Surles Contract Carrier Application, 4 M.C.C. 488 (1938).

12 . Armstrong, 2 I.C.C.2d at 70.

13 . Id. (quoting Surles, 4 M.C.C. at 494).

14 . See e.g. Petroleum Products, 71 M.C.C. at 20.

15 . See also Mitchell v. Livingston & Thebaut Oil Co., 256 F.2d 757 (5th Cir.1958).

16 . Atlantic Coast Line, 275 U.S. at 269, 48 S.Ct. at 111.

17 . 260 U.S. 166, 171, 43 S.Ct. 28, 30, 67 L.Ed. 189 (1922).

18 . Id.

19 . Id.

20 . Armstrong, 2 I.C.C.2d at 70 (emphasis added) (citing Settle, 260 U.S. at 173, 42 S.Ct. at 29).

21 . Id.

22 . 73 M.C.C. 527 (1957).

23 . Id. at 532.

24 . 76 M.C.C. 773, 777 (1958).

25 . 300 I.C.C. 409, 428 (1957).

26 . 325 I.C.C. 697 (1965).

27 . Armstrong, 2 I.C.C.2d at 71 (quoting Oil Field Haulers, 325 I.C.C. at 701 and adding emphasis).

28 . Armstrong, 2 I.C.C.2d at 72.

29 . 565 F.2d 615 (9th Cir.1977).

30 . Id. at 620.

31 . Armstrong, 2 I.C.C.2d at 73 (citing Southern Pacific, 565 F.2d at 619).

32 . Id. at 73.

33 . Texas v. Anderson, Clayton & Co., 92 F.2d 104, 107 (5th Cir.), cert. denied, 302 U.S. 747, 58 S.Ct. 265, 82 L.Ed. 578 (1937).

34 . 719 F.2d 304 (9th Cir.1983).

35 . 407 F.2d 1173 (9th Cir.), cert. denied, 396 U.S. 819, 90 S.Ct. 56, 24 L.Ed.2d 70 (1969).

36 . 719 F.2d at 310.

37 . Id.

38 . Northwest Terminal Elevator Ass'n v. Minnesota PUC, 576 F.Supp. 22, 30 (D.Minn.1983), aff'd, 725 F.2d 80 (8th Cir.1984).

39 . See Armstrong, 2 I.C.C.2d at 67.

40 . Id. at 69.

41 . Id. at 73.

42 . Id. at 74.

43 .See United States v. L.A. Tucker Truck Lines, 344 U.S. 33, 73 S.Ct. 67, 97 L.Ed. 54 (1952); Merchants Fast Motor Lines v. ICC, 528 F.2d 1042, 1044 (5th Cir.1976).