The Board Proposes to Modify its Regulations to Establish a Voluntary Arbitration Program for Small Rate Disputes

On November 15, 2021, the Board issued a notice of proposed rulemaking (NPRM) to modify its regulations at 49 C.F.R. Part 1108, Subpart B to establish a voluntary arbitration program for small rate disputes.  Joint Petition for Rulemaking to Establish an Alternative Voluntary Arbitration Program for Small Rate Disputes, EP 765 (STB served Nov. 15, 2021).  The Board also stated that it has decided to defer final action in Docket No. EP 755, Final Offer Rate Review,to allow for “parallel consideration of the voluntary, small rate case arbitration program proposed in this docket.”  Id., slip op. at 8. 

On July 31, 2020, five Class I railroads, Canadian National Railway Company, CSX Transportation, Inc., Norfolk Southern Corporation, Union Pacific Railroad Company, and the Kansas City Southern Railway Company (collectively, Petitioners), submitted a joint petition requesting that the Board initiate a rulemaking proceeding to establish a new voluntary arbitration program for small rate disputes at 49 C.F.R. Part 1108a, which would function alongside the existing arbitration program at 49 C.F.R. Part 1108.  See id., slip op. at 1.

The Board received multiple replies to the petition.  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, EP 765 (STB served Aug. 26, 2020).  Petitioners submitted a supplemental pleading on September 10, 2020, stating that they were agreeable to some modifications to the proposed program.  Multiple shippers also submitted filings on September 10, renewing their objections to the proposed program.

On November 25, 2020, the Board instituted a rulemaking proceeding to consider the proposal.  Joint Petition for Rulemaking to Establish an Alternative Voluntary Arbitration Program for Small Rate Disputes, EP 765 (STB served November 25, 2020).  Additionally, Canadian Pacific Railway Company (CP) filed a letter with the Board on January 25, 2021, stating that CP supports the effort to find an arbitration program for small rate cases, and CP would participate in such a pilot program.  See Joint Petition for Rulemaking to Establish an Alternative Voluntary Arbitration Program for Small Rate Disputes, EP 765, slip op. at 6 (STB served Nov. 15, 2021).

In its November 15, 2021 decision, the Board stated that its arbitration proposal set forth in the NPRM is modeled on some, but not all, aspects of Petitioners’ proposal.  Id., slip op. at 8.  The Board also addressed the significant features of the proposal.

Under the Board’s proposal, it would not allow for at-will participation, as Petitioners proposed.  Id., slip op. at 11.  Rather, the Board would “only permit term participation, with the initial term due to expire five years from the effective date of the arbitration program.”  Id.  Class II or Class III carriers could choose to participate in the program on a case-by-case basis.  Id., slip op. at 12.  The Board also proposed “more narrow withdrawal rights that would allow withdrawal from the program only if there is a material change in law.”  Id., slip op. at 11.  Additionally, “[t]o account for the possibility that the Board might adopt [Final Offer Rate Review (FORR)] either concurrently with the adoption of a voluntary arbitration program or during the pendency of such a program,” the Board proposed “that participation in arbitration exempts participating carriers from FORR.”  Id., slip op. at 12.

Under the proposal, the arbitration process would be initiated by the shipper’s submission of written notice to the participating carrier, with a copy of the notice to the Board’s Office of Public Assistance, Governmental Affairs, and Compliance (OPAGAC).  Id., slip op. at 20.  A shipper would not be permitted to bring more than one arbitration at a time against a participating railroad.  Id., slip op. at 18-19.  The proposal also limits the number of arbitrations that a carrier can be subject to during a rolling 12-month period to 25 cases.  Id., slip op. at 18.

Under the proposal, the Board would allow parties to engage in mediation prior to the arbitration phase if they mutually agree.  Id., slip op. at 21.  The NPRM provides for a default 30-day pre-arbitration mediation period.  Id., slip op. at 22.  If the mediation is unsuccessful, a joint notice to arbitrate should be filed by the parties.  Id

The Board also proposed permitting parties to select arbitrators not on the Board’s arbitration roster and allowing parties to object to the opposing party’s selected arbitrator for cause.  Id., slip op. at 24.  The Board further proposed that the parties would pay the cost for their own arbitrator, and the cost of the lead arbitrator would be shared equally.  Id., slip op. at 25, 26.

With respect to the procedural schedule, the Board proposed a schedule “beginning with a 90-day evidentiary phase comprised of 45 days for discovery and an additional 45 days for the submission of pleadings or evidence.”  Id., slip op. at 27.  The arbitration panel would be able to extend the “discovery sub-phase” upon request, but this would not automatically extend the entire evidentiary phase beyond 90 days.  Id.  Discovery would be limited to “20 written document requests, five interrogatories, and no depositions.”  Id., slip op. at 28.

The Board also included a provision that would require the automatic disclosure of confidential waybill data, for the preceding four years, to each party to an arbitration.  Id., slip op. at 29.  The Board proposed amending its existing waybill access procedures to include parties to a small rate case arbitration as a category of user that would be able to request and use such data in arbitrations under the arbitration program.  Id., slip op. at 31.

Regarding market dominance, the Board proposed that market dominance determinations be made by the arbitration panel and that carriers would be able to concede market dominance, or the parties could jointly request that the Board determine market dominance.  Id., slip op. at 35. 

The Board stated that it will propose the same general standards for rate reasonableness as suggested in the petition, “which closely follows the language of § 11708(c)(3) and (d)(1).”  Id., slip op. at 37.  The Board also proposed to include NGFA’s proposed market-based factors in the text of the regulation.  Id., slip op. at 38.

With respect to relief, the Board proposed a relief cap of $4 million and a relief period of two years.  Id., slip op. at 41.  This relief cap parallels the FORR process.  Id.  The Board also proposed language that makes clear that the preclusive effect of an arbitration decision is terminated if the carrier increases the rate.  Id., slip op. at 42.  In addition, the Board proposed permitting carriers and shippers to agree in an individual case to arbitrate under the proposed “procedures for a lesser or higher amount and/or a shorter or longer relief period, not to exceed the $25 million cap or five-year period set forth in 49 U.S.C. § 11708.”  Id., slip op. at 43.

The Board also proposed appellate and enforcement procedures similar to those proposed in the petition, and “adding a provision stating that parties may seek judicial review of arbitration awards in a court of appropriate jurisdiction pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 9–13, in lieu of seeking Board review.”  Id., slip op. at 43, 44.

Additionally, the arbitration process would be confidential, “including discovery, filings to the arbitrators, the Initial Notice and OPAGAC confirmation letter, the Joint Notice, and confidentiality agreements concerning Waybill Sample data.”  Id., slip op. at 48.   

The Board agreed with shippers who argued that there would be benefits to a review of the proposed arbitration program “to ensure that the program is working as intended and proving effective.”  Id., slip op. at 51.  The Board proposed that a review occur after a reasonable number of arbitrations have been conducted, but not later than three years after start of the program.  Id.

The Board is seeking comments on various aspects of the proposal, as set forth in the NPRM.  Comments were due by January 14, 2022.  In a decision served on December 29, 2021, in Docket Nos. 765, 755, and 665 (Sub-No. 2), the Board denied a request to hold EP 765 in abeyance and ordered that reply comments in these dockets are due by April 15, 2022.  See Joint Petition for Rulemaking To Establish A Voluntary Arbitration Program For Small Rate Disputes, EP 765 (STB served Dec. 29, 2021). 

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