STB Adopts ‘Smaller Rate Dispute’ Rules

The Surface Transportation Board (STB) on Dec. 19 adopted two final rules establishing new “rate reasonableness procedures” it says “provide two streamlined approaches for shippers and railroads to resolve smaller rate disputes.” The Association of American Railroads is calling STB’s actions “fatally flawed.”

The two rulings are Final Offer Rate Review (FORR) Docket No. EP 755) and Joint Petition for Rulemaking to Establish a Voluntary Arbitration Program for Small Rate Disputes (Arbitration Final Rule), Docket No. EP 765. Both can be downloaded below:

The Board’s two Republican Members, Patrick Fuchs and Vice Chairman Michelle Schultz, dissented on FORR. Though all five Members concurred on the Arbitration Final Rule, Fuchs did so with separate expression; Schultz commented with separate expression.

STB describes FORR, effective 60 days from date of publication in the Federal Register, as “a voluntary arbitration program and an entirely new procedure for rate challenges.” The final rule establishing the Voluntary Arbitration Program program is effective 30 days from the date of publication in the Federal Register.

“Either rate review mechanism will substantially improve shippers’ access to rate reasonableness reviews for smaller rate disputes,” STB said, adding that the Voluntary Arbitration Program will become operative “only if all seven Class I carriers commit to participating in the program for five years and do so within 50 days of the date of publication of the final rule in the Federal Register,” and that “if all Class I carriers do so, they will be exempt from the FORR procedure.”

Both review mechanisms are limited to rate disputes worth up to $4 million in relief over two years. Under the new FORR procedure, if STB finds a rate to be unreasonable, the Board “will decide the rate by selecting either the complainant’s or the defendant’s final offer, subject to an expedited procedural schedule that adheres to firm deadlines. Under the arbitration program, Class I rail carriers would commit for a period of five years to arbitrate rate disputes, under a similarly expedited schedule.”

“The Board today has taken great strides in its long-term quest to make the adjudication of smaller rate disputes more accessible, reasonable and less time-consuming,” said Chairman Marty Oberman, pointing to “the leadership of former Chairman Ann Begeman in establishing the Rate Reform Task Force in 2018, whose thorough effort led to the ideas incorporated in these two new procedures.”

“The two rules attempt to strike a balance between the competing interests of various stakeholders,” Oberman said. “While much of the shipper community has expressed a preference for FORR and the railroad community pursued a voluntary arbitration program in lieu of FORR, both rules have much in common. They both offer relief under similar timeframes, allow for flexibility to use different methodologies, and have the same monetary limits. I am confident that either program will provide shippers with access to more meaningful rate relief than was previously available to them. The Board has long sought a suitable method of making adjudication of smaller rate disputes accessible, reasonable, and less time-consuming for affected parties. Experience has shown that the Board’s prior efforts to provide rate review methods suitable for smaller disputes have been rarely used by shippers.

“I am optimistic that this time the Board’s efforts will achieve this long-desired goal. I encourage the Class I railroads to accept the opportunity afforded by the new rule and sign up for the arbitration program they clearly prefer. However, if they do not, in my view, FORR also provides a strong rate relief mechanism, and its availability would also streamline rate review processes in small rate cases. To be clear, regardless of some differences of opinion about the most preferable way forward, all Board Members are committed to ensuring review of rate challenges are practical and affordable.”

Background

In September 2019, STB issued a Notice of Proposed Rulemaking (NPRM) and sought public comment on its proposal for the new FORR procedure. “Subsequently, five Class I railroads filed a joint petition urging the Board to exempt them from the FORR procedure, promising in return to agree to resolve rate challenges through binding arbitration, a methodology in which the carriers had previously refused to participate for many years,” the Board noted. “The Board reviewed that petition and explored whether establishing a voluntary arbitration program would provide a practical alternative dispute resolution mechanism to address smaller rate disputes. In November 2021, following this effort, the Board advanced rulemakings in both FORR and the establishment of a Voluntary Arbitration Program.

AAR: “Baseball-Style Arbitration”

The STB “issued a fatally flawed final rule in its Final Offer Rate Review proceeding, and at the same time issued a proposal for new STB arbitration rules,” the AAR said in a statement. “Unfortunately, the arbitration proposal ignores key principles that could otherwise make STB-sponsored arbitration of small rate disputes a viable option. AAR and its members are closely reviewing the decisions to determine next steps, but it is clear that our primary concerns remain.

“FORR, the rule modeled on baseball-style arbitration, flatly exceeds the agency’s authority. In a case filed under the new rule, the agency would do no independent analysis or engage in any reasoned decision-making, but instead would simply choose the ‘final offer’ rate proposed either by the shipper or by the railroad.

“With respect to the arbitration procedures for small rate cases that a group of Class I railroads had proposed, the Board’s decision falls short of including substantive provisions that were critical to one or more railroads. But at the same time, the rule effectively requires all Class I railroads to agree to participate in order for the procedure to be available as an option for any railroad.”

“The FORR rule abdicates the agency’s statutory responsibility to determine the maximum reasonable rate,” said AAR President and CEO Ian Jefferies. ”Sound economic principles are abandoned in favor of an arbitrary procedure that offers no certainty to any stakeholder and instead rewards legal brinksmanship. On its face, the ‘all or none’ approach misses the mark and risks undermining the Board’s stated desire for alternative dispute resolution over litigated outcomes. As it stands, even if a vast majority of railroads sign up for arbitration, the rule will prevent small rate disputes that could quickly and cost-effectively be arbitrated, because anything short of 100% industry participation prevents anyone from using it. Unfortunately, these decisions could very well result in a missed opportunity to create a workable solution for shippers and railroads alike.”

Further Reading

Can STB Avoid Political Division?

STB Advances Rate Review Rulemakings for Small Rate Disputes