Five Class I Railroads File Joint Petition for Rulemaking to Establish an Alternative Voluntary Arbitration Program for Small Rate Disputes

On July 31, 2020, five Class I railroads, Canadian National Railway Company (CN), CSX Transportation, Inc. (CSX), Norfolk Southern Corporation (NS), Union Pacific Railroad Company (UP), and the Kansas City Southern Railway Company (KCS) (collectively, Petitioners), submitted a joint petition requesting that the Surface Transportation Board (STB or Board) initiate a rulemaking proceeding to establish a new voluntary arbitration program for small rate disputes.  Joint Petition for Rulemaking to Establish an Alternative Voluntary Arbitration Program for Small Rate Disputes, Ex Parte 765 (filed July 31, 2020).

Petitioners stated that Congress had instructed the Board to develop “simplified and expedited methods for determining the reasonableness of challenged rates in those cases in which a full stand-alone cost presentation is too costly, given the value of the case.”  Id., slip op. at 1.  Over the last thirty years, “the Board has responded by creating multiple new simplified, and increasingly less precise, rate review methodologies.”  Id.  However, some stakeholders in the shipping community have continued to complain that the Board’s implied methodologies are insufficient in regard to flexibility, cost, and speed.  Id.

Petitioners presented a proposal for a voluntary arbitration program that would be aimed at small rate cases (the Small Case Arbitration Program).  The program was shaped by discussions between Class I railroads and other stakeholders.  Id., slip op. at 2.  Notably, Petitioners stated that they were prepared to consent to arbitrate cases under the Small Case Arbitration Program for a five-year period, provided that the Board adopts the program according to the terms set forth in the petition.  Id.

            The Small Case Arbitration Program would function alongside the Board’s existing arbitration program, established in 49 C.F.R. Part 1108.  The program would apply to rate disputes that involve rates for regulated commodities that are not subject to a rail transportation contract.  Id., slip op. at 11.  Shippers would be limited to bringing only one arbitration at a time against a specific carrier, and would be permitted to challenge rates for multiple traffic lanes in a single case.  Id.  A shipper would initiate a case by notifying a railroad in writing.  Id.  The parties would be required to mediate the dispute for at least 30 days without the Board’s involvement.  Id.  If mediation is unsuccessful, the parties would jointly file a confidential notice of their intent to arbitrate.  Id.  Arbitrations would be confidential to the maximum extent possible, and the parties would need to agree to a confidentiality agreement.  Id., slip op. at 16.

            The arbitration panel would consist of three arbitrators.  Id., slip op. at 12.  Each party would select an arbitrator, and the two party-selected arbitrators would choose a third arbitrator from a joint list provided by the parties.  Id.  The Board would only become involved in the selection process in two rare circumstances: (1) if a party objects to the other side’s selected arbitrator “for cause,” such as a lack of impartiality or a conflict of interest; or (2) if the two party-appointed arbitrators cannot agree on a third arbitrator.  Id.

            The Small Case Arbitration Program would set forth an expedited schedule.  Id., slip op. at 13.  Within seven days of filing the joint notice of intent to arbitrate, the Board’s Office of Economics would provide each party with certain unmasked, confidential Waybill Sample data.  Id.  Discovery would need to be completed within 45 days of filing the joint notice, and would be limited to 20 written document requests, five interrogatories, and no depositions.  Id.  The final decision from the arbitration panel would be required within 120 days of the joint notice.  Id.

            The arbitration panel would be charged with deciding market dominance, “follow[ing] the streamlined market dominance test proposed in Ex Parte 756, in the form that is finally adopted by the Board.”  Id.  The panel would also be charged with deciding rate reasonableness, following the standards in 49 U.S.C. § 11708(c)(3) and (d)(1).  Id., slip op. at 14.  The panel would be required to consider but not necessarily to follow an existing rate methodology but “would be prohibited from basing their decisions on a system-wide revenue adequacy constraint.”  Id.  The panel would be permitted to award relief up to $4 million dollars over two years, indexed for inflation annually.  Id., slip op. at 11.  Rate prescriptions would be limited to one year.  Id.

            Each party would be permitted to appeal the panel’s decision to the Board within 20 days of the decision.  Id., slip op. at 15.  In accordance with 49 U.S.C. § 11708 and 49 C.F.R. § 1108.11, the Board’s review would be limited to determining the following: “(a) the decision is consistent with sound principles of rail regulation economics; (b) a clear abuse of arbitral authority or discretion occurred; (c) the decision directly contravenes statutory authority; or (d) the arbitral award limit was violated.”  Id.

            A participating carrier or shipper would be able to withdraw their consent to arbitrate, in accordance with the rules of the program.  The program would include rules permitting withdrawal due to change in law, case volume, and at-will withdrawal.  Id., slip op. at 16-18.

            Petitioners urged the Board to institute a rulemaking proceeding, stating that the Small Case Arbitration Program would permit efficient rate dispute resolution on reasonable terms, and would provide a “win-win-win solution for railroads, customers, and the Board.”  Id., slip op. at 21, 28.

On August 26, 2020, the Board issued a decision stating that, before deciding whether to institute a rulemaking proceeding, it would benefit from having Petitioners’ reaction to filings by the National Grain and Feed Association (NGFA) and other parties regarding suggested modifications to the arbitration program.  Joint Petition for Rulemaking to Establish an Alternative Voluntary Arbitration Program for Small Rate Disputes, Ex Parte 765 (STB served Aug. 26, 2020).  Petitioners submitted a supplemental pleading on September 10, 2020, responding to NGFA and other commenters.

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