Utah Power & Light Co. v. Interstate Commerce Commission (747 F.2d 721, 1984)

MacKINNON, Senior Circuit Judge:

The Utah Power and Light Company (“Utah Power” or the “Utility”) petitions for review of a decision of the Interstate Commerce Commission (“ICC”). That decision reversed an earlier decision of the Utah Public Service Commission (“Utah Commission”) ordering the Denver and Rio Grande Western Railway Company (the “Rio Grande”) and the Salt Lake, Garfield and Western Railway Company (the “Salt Lake”) to reduce the tariff on certain intrastate coal movements and to pay reparations for the period from March 28, 1981, onwards. Without applying to the Utah Commission for rehearing, the railroads petitioned the ICC for review of the order “on the grounds that the standards and procedures applied by the State Commission were not in accordance with the provisions of ...” the federal statute. Staggers Rail Act of 1980 § 214(e), 94 Stat. 1895, 1914-15 (1980) (codified at 49 U.S.C. § 11501(c) (Supp. V 1981)). The Rio Grande and Salt Lake have intervened in support of the ICC, the Utah Commission in support of Utah Power. We hold that the ICC had jurisdiction to review the Utah decision, and uphold the ICC’s reversal of the Utah Commission, but we remand to the ICC to supplement the record on certain cost figures relevant to determining the appropriate rate.

I. Background

The rate at issue in this dispute is that to be charged for the volume movement of bituminous coal by unit train from Valley Camp Mine at Clear Creek, Utah, to Utah Power’s Gadsby Plant at Salt Lake City, Utah. The Rio Grande handles the coal for all of the 118 mile, round trip journey, except for the last half-mile which traverses the tracks of the Salt Lake. The Union Pacific Railroad (UP) provides switching services necessary to connect the other two railroads. The entire movement is intrastate.

On March 27, 1981, relying on section 229 of the Staggers Rail Act of 1980, Utah Power filed separate complaints with the Utah Commission and the ICC. Utah Power alleged that the railroads carrying this coal traffic had market dominance over the transportation of coal from Valcam, Utah to Gadsby, Utah, and that the existing applicable rate of $5.97 per ton (Rio Grande Tariff No. 4166) was unreasonably high. Ruling that the Utah Commission had initial jurisdiction over the intrastate rate, the ICC dismissed the complaint filed with it.

Utah Power pursued its complaint before the Utah Commission, which conducted a full inquiry regarding the rate. The Utah Commission had previously represented to the ICC that it would follow federal standards and procedures in accordance with the Staggers Act, and on this representation the Utah standards and procedures had been provisionally certified by the ICC as acceptable state procedures. On December 21, 1982, the Utah Commission issued its Report and Order ruling that the railroads had market dominance over the transportation to which the rates at issue applied, that the Rio Grande was revenue adequate, and that subject rates were unreasonably high. In the Matter of UTAH POWER & LIGHT CO. versus The Denver & Rio Grande Western Railroad Co., Union Pacific Railroad Co., and Salt Lake, Garfield and Western Railway Co., No. 83-035-06, Report and Order (Public Service Commission of Utah, Dec. 21, 1982) (hereinafter “Utah Commission Report and Order”) (Joint Appendix (“JA”) 86). The Utah Commission ordered the railroads to reduce the rates and to pay reparations to Utah Power. The decision was to take effect thirty days from the date of service of the decision unless a prior stay was granted. At ho time did any party file an application for rehearing with the Utah Commission.

On January 14, 1983, the railroads requested the Utah Commission to stay the Order until March 2, 1983. Utah Power opposed the request on the ground that no party had applied for rehearing of the Commission’s decision. On January 19, 1983, the Utah Commission granted the railroad’s requested extension without comment on the rehearing issue.

On January 19, 1983, the Rio Grande and the Salt Lake petitioned the ICC for review of the Utah Commission’s decision pursuant to § 214(c) of the Staggers Act, which provides:

Any rail carrier providing transportation subject to the jurisdiction of the Commission under subchapter I[] of chapter 105 of this title may petition the Commission to review the decision of any State authority, in any administrative proceeding in which the lawfulness of an intrastate rate, classification, rule, or practice is determined, on the grounds that the standards and procedures applied' by the State were not in accordance with the provisions of this subtitle. The Commission shall take final action on any such petition within 30 days after the date it is received. If the Commission determines that the standards and procedures were not in accordance with the provisions of this subtitle, its order shall determine and authorize the carrier to establish the appropriate rate, classification, rule, or practice.

Staggers Rail Act of 1980 § 214(c), 94 Stat. 1895, 1914-15 (1980) (codified at 49 U.S.C. § 11501(c) (Supp. V 1981) (hereinafter section 11501(c)). The Utah Commission moved the ICC to dismiss the petition, arguing that because the Rio Grande and Salt Lake had failed to exhaust their state administrative remedies by petitioning for rehearing before the Utah Commission, the ICC was without jurisdiction to review the decision of the Utah Commission.

After the initial filing of the railroad’s petition, the ICC requested the Rio Grande and Salt Lake to provide a missing page of an appendix to its petition. After the page was filed, the ICC notified counsel for the railroads that its filing was deemed complete as of January 28, 1983 and that the ICC, being required to take final action within 30 days, would act on the petition by February 25, 1983.

In a decision dated February 25, 1983, but not served until March 2, 1983, the ICC affirmed the Utah Commission’s holding of market dominance, reversed its decision on the revenue adequacy of the Rio Grande, and the unreasonableness of the rate, and held that the rates in issue were reasonable. Petition of the Denver & Rio Grande Western Railroad Co. and Salt Lake, Garfield and Western Railway Co. for Review of a Decision of the Public Service Commission of Utah Pursuant to 49 U.S.C. 11501, No. 39060 (I.C.C. Feb. 25, 1983) (hereinafter “ICC Decision”) (J.A. 584). On March 8, 1983, the ICC served the cost appendix to its March 2, 1983 decision (JA 596). In that appendix, the ICC explained its earlier decision to reverse some of the cost findings of the Utah Commission on disputed issues, and to affirm others.

Utah Power then petitioned this court for review of the ICC’s decision on a number of grounds. Petitioner now argues, inter alia, that the ICC exercised jurisdiction unlawfully because the railroads had failed to exhaust their state administrative remedies; that the ICC violated its statutory mandate and lost jurisdiction when it allegedly failed to serve its decision within 30 days; that the ICC exceeded its appellate jurisdiction by unlawfully conducting a de novo review of the record compiled before the Utah Commission; and that the ICC’s cost calculations were not supported by substantial evidence and constitute an abuse of discretion. We agree only that some of the cost calculation's are questionable, and thus remand the case to the ICC for a fairly limited re-examination of its determination as to the reasonableness- of the railroads’ existing rate. Otherwise we affirm the decision of the ICC. In particular, we hold that the Utah Commission’s decision was properly overturned for its failure to follow federal standards on revenue adequacy.

II. Threshold Jurisdictional Issues

A. The Exhaustion of Administrative Remedies

One “long-settled rule of judicial administration [is] that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted.” Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51, 58 S.Ct. 459, 463, 82 L.Ed. 638 (1938) (citing cases) (emphasis added); see Porter v. Investors Syndicate, 286 U.S. 461, 471, 52 S.Ct. 617, 620, 76 L.Ed. 1226 (1932). Utah Power here seeks to invoke this rule and thus to deny jurisdictional legitimacy to the railroads’ resort to the ICC. The ICC maintains that it had an •adequate jurisdictional foundation for its review of the Utah decision.

1. The Staggers Act Certification Process

On the exhaustion issue, we have great difficulty with the ICC’s sweeping assertion in this case that federal preemption completely forecloses any necessity of the ICC giving consideration to a state rehearing requirement. We do not conclude that federal preemption in the Staggers Act can be extended to such limits. Rehearing is a normal feature of administrative action’ and when properly applied for, and responded to, can work to substantially reduce subsequent litigation. We do not interpret the Staggers Act as ruling out all necessity to apply for rehearing in state cases. In the course of enacting the Staggers Act, Congress expressly rejected a sweeping federal preemption of the state regulatory role. Such preemption was originally provided for in the bill that became the Staggers Act, but the attempt to oust the states completely from some regulatory role in intrastate rates was defeated. Instead, a compromise resulted which guaranteed that “[ijntrastate rail movements [in most cases] will continue to be regulated by state regulatory agencies with uniformity and consistency.” 126 Cong.Rec. H8548 (daily ed. Sept. 9, 1980) (statement by Rep. Staggers). Rehearing is a normal, though not universal, feature of such state regulation. The legislative compromise was recorded in the Conference Report: “states may only regulate in these areas if they are certified under the procedures of [section 11501].” H.Rep. No. 96-1430, 96th Cong., 2d Sess. 106 (conference), reprinted in 1980 U.S.Code Cong. & Ad.News 3978, 4110, 4138. Thus, the states’ authority to regulate depends upon ICC certification of their regulatory procedures — which might include rehearing procedures — in order to ensure that federal standards established by and in accordance with the Staggers Act will be applied uniformly in determining intrastate rates.

We also reject the attempt by the ICC to find some support for its assumption of jurisdiction purely on the fact that “Utah’s intrastate rate regulation has been only provisionally certified.” ICC Brief at 27 (emphasis in the original). This contention simply does not wash. In so contending the ICC attempts to inflate the scope of its own discretionary authority to a degree wholly unsupported by the Staggers Act. First of all, the Act does not provide explicit authority for a provisional certification. The purpose of the ICC in “provisionally” certifying was to act timely in order to bring complying states immediately under federal jurisdiction on intrastate rates, in the meantime depriving the state agencies of some of the benefits of a final certification by leaving open the capability of the ICC subsequently to reject certification if it should finally determine that the State Commission’s standards and procedures were deficient. In the interim, though, the State Commission’s standards and procedures must be considered to have been “certified.” A provisional certification is still a certification. It is not a partial certification. We find the conditional certification of the Utah standards and procedures to be valid. See Illinois Central Gulf Railroad Co. v. ICC, 720 F.2d 958, 962 (7th Cir.1983). The ICC in so acting was filling a void in the Staggers Act which permitted the agencies involved to carry out its basic intent and purpose that intrastate rail operations would conform to federal standards and procedures. Id.

Finally, we must reject the ICC’s view of the certification process. The ICC appears to assert that even if it had certified an express rehearing petition requirement, it could nevertheless ignore a party’s failure to comply with such a requirement, as any other course “would render review of certified states’ procedures in individual appeals impossible.” ICC Brief at 27-28. We disagree that ICC review under such circumstances would become impossible. Because we hold, infra, that in the circumstances of this case the ICC was justified in exercising jurisdiction under section 11501(c), it is not necessary to address further the ICC’s contention that it could ignore such a rehearing requirement if it were clearly stated and subsequently certified.

2. The Exhaustion Requirement in the Staggers Act Setting

In many cases administrative remedies must be exhausted if litigants are to gain judicial review in federal courts, although that is not a hard and fast rule, even for review by courts. In any event, however, and contrary to the contentions of Utah Power, exhaustion by rehearing is not required in this case. We find several reasons for concluding that the railroads were not compelled to exhaust the state agency rehearing option prior to seeking ICC review.

First, to the extent that local law controls the issue, the Utah statute does not impose any firm exhaustion requirement. The applicable Utah statute, Utah Code Ann. § 54-7-15 (1953) as amended, and Rule 19 of the Utah Commission indicate that those rehearing provisions are only a prerequisite for further court action.

First, the topical heading of the statute so states:

Utah Code Ann. § 54-7-15:

Review or rehearing by commission — Application — Procedure—Prerequisite to court action.

1981 Utah Laws 1126, 1132, ch. 215, § 5. The topical heading “[prerequisite to court action ” (emphasis added) indicates the intent of the legislature, because the heading was part of the Act as enacted by the Utah Legislature and was not inserted by the revisor, codifier, or publisher. See id. Consistently, the body of the.Utah statute also refers to court action. See supra, n. 7. A “legal action” most frequently refers to a suit in court. At best “legal action” is ambiguous; interpreting it in line with the topical heading and the express reference to proceedings “in any court,” we conclude that the Utah Act relates the rehearing only to subsequent “court actionfs].” Quite obviously, an ICC proceeding is not a “court action.” Also, the Utah statute is permissive rather than mandatory, providing that a party affected by an order of the Commission “may apply [to the Utah Commission] for review or rehearing.” In addition, failure timely to apply for rehearing does not, under decisional Utah law, preclude a subsequent administrative proceeding that makes a substantive attack on a Commission decision. Bowen Trucking, Inc. v. Public Service Commission, 559 P.2d 954, 956 (Utah 1977) (citing Sale v. Railroad Commission, 15 Cal.2d 612, 104 P.2d 38, 40-41 (1940)). The terms of the Utah statute thus do not require an application for rehearing as an absolute precondition even to state administrative proceedings.

Nor does Rule 19 of the Rules of Practice of the Utah Commission create the asserted exhaustion requirement. The relevant subsections of the Rule only provide time limits for filing rehearing petitions with the Utah Commission and petitions for writs of certiorari to the Utah Supreme Court. Such petitions control access to the Utah Supreme Court, not the ICC. In addition, consistent with the Utah statute, the Utah Commission’s topical heading to subsection (f) of the Rule is entitled “Judicial Review.” In sum, neither the Utah Legislature in the Act, nor the Utah Commission in its regulations, ever intended to prescribe the jurisdiction of the ICC.

Furthermore, it is important to recognize that Utah has only such limited authority to limit the jurisdiction of the federal Commission as the Staggers Act may attach to its statutory and regulatory procedures. While in some instances the Utah statutes and agency rules might be construed under federal law to lead to circumstances in which the ICC might refuse to take jurisdiction, that jurisdiction in the last analysis is dependent on federal statutes, regulations and decisional law. Under federal law and the ICC’s practice, petitioners to the ICC from decisions of state agencies are not necessarily required to exhaust state administrative remedies.

On the applicability of exhaustion here, Utah Power is confused. When a party in federal court seeks judicial review of the decision of an administrative agency it is well established, subject to some exceptions, that the party must generally exhaust any administrative remedy available to it. See, e.g., Myers v. Bethlehem Corp., 303 U.S. 41, 50-52, 58 S.Ct. 459, 463-465, 82 L.Ed. 638 (1938) (citing cases). This rule has been applied to attempts to invoke the powers of the courts against state administrative agencies from early on. See Pittsburgh, Cincinnati, Chicago & St. Louis Railway Co. v. Board of Public Works, 172 U.S. 32, 38, 19 S.Ct. 90, 92, 43 L.Ed. 354 (1898). The requirement originated out of considerations of equity jurisdiction, in which the party seeking an injunction against the decision of a state agency without availing himself of an opportunity to apply for rehearing was deemed to have an adequate remedy at law: “No court of equity will ... allow its injunction to issue [unless the petitioner] has no adequate remedy by the ordinary processes of the law.” Id.

In contradistinction, though, when an affected party attempts to invoke the jurisdiction of a federal administrative agency to review a decision of a state administrative agency the same limitations stemming from the limits on a court’s equity jurisdiction or authority are not applicable in the absence of statute, regulation, or decisional law. In such cases, the jurisdiction of the federal agency, and thus the application of the exhaustion doctrine, turn on the particular statute and its legislative history. In cases where the statute, or regulations thereunder, do not require exhaustion, courts may look to the statutory role of the state agency and tailor the exhaustion rule to fit the role assigned to that state agency. See Patsy v. Board of Regents, 457 U.S. 496, 502 n. 4, 102 S.Ct. 2557, 2561 n. 4, 73 L.Ed.2d 172 (1982); State of Texas v. United States, 730 F.2d 409, 414 (5th Cir.1984) (ICC review under section 11501(c) of the Staggers Act not limited to final decisions of state agencies).

The applicable federal statute here provides that:

Any rail carrier ... may petition the [ICC] to review the decision of any State authority, in any administrative proceeding in which the lawfulness of an intrastate rate ... is determined, on the grounds that the standards and procedures applied by the State were not in accordance with the provisions of [the Staggers Act].

49 U.S.C. § 11501(c) (emphasis added). The decision of the Utah, Commission is a decision of a “state authority,” and the Rio Grande seeks ICC review of that decision without having applied for rehearing. The federal statute does not specifically limit the jurisdiction of the ICC to final decisions of state agencies or require exhaustion of administrative remedies. Exhausting available rehearing options would often be consistent with sound administration, would in many instances avoid unnecessary litigation, would allow deference to state administrative expertise, and would recognize administrative autonomy in proper cases. Nothing in the Staggers Act, however, specifically requires complete exhaustion of available state administrative rehearing remedies as a precondition to ICC review, and the ICC itself has imposed no such requirement. See State of Texas, supra, 730 F.2d at 409. In our view, any overly rigid exhaustion requirement would be sharply inconsistent with one of the central purposes of the Staggers Act — facilitating swift federal review of final decisions by state commissions.

While the ICC may in some cases apply reasonable exhaustion requirements, we cannot fault its decision to review this state administrative decision as presented. The extensive consideration of the issues by the Utah Commission, and the vigorous defense before this court by the Utah Commission of- its very detailed decision, adopting all the arguments advanced by Utah Power, indicate that any request for rehearing would be denied. This case thus comes within the well-recognized exception

to the exhaustion requirement that does not require a party to engage in a futile proceeding. Where application for rehearing is a mere formality in an administrative proceeding, judicial relief may be sought without exhausting such procedure if the order challenged is definitive and deals with the merits in controversy. Levers v. Anderson, 326 U.S. 219, 66 S.Ct. 72, 90 L.Ed. 26 (1945); see Athlone Industries, Inc. v. Consumer Product Safety Commission, 707 F.2d 1485, 1488-89 (D.C.Cir.1983) (When the prior position of the agency indicates that an application for rehearing would be futile, it is not necessary to exhaust administrative remedies before seeking judicial relief); Etelson v. Office of Personnel Management, 684 F.2d 918, 923 (D.C.Cir.1982) (Two strong factors supporting a conclusion that a litigant need not exhaust administrative remedies are that a form of his claim was raised before the agency and that “the agency has demonstrated its disinclination to respond favorably to [the] claim.”). Any administrative purposes favoring exhaustion generally were satisfied here when the Utah Commission considered the matter in extenso, made its ruling, stated the reasons for its decision, and adhered to them without deviation in this proceeding. As in State of Texas, supra, exhaustion here would have been futile and could have served “no useful purpose.” 730 F.2d at 414. In conclusion, Utah Power will not be allowed to exalt what is at best an ambiguous rehearing requirement into an absolute bar to ICC jurisdiction in this case.

B. The ICC’s Alleged Delay in Serving its Decision

The Staggers Act provides that when an appeal from a state agency decision is taken to the ICC, “[t]he Commission shall take final action on any such petition within 30 days after the date it is received.” 49 U.S.C. § 11501(c). Utah Power argues that because the date of service was not within 30 days of the filing of the completed petition, that deprived the ICC of the right to decide the merits of the petition. We disagree with the factual assumptions upon which Utah Power bases its contention, and necessarily therefore with its conclusion. In addition, we could not support such an extreme sanction.

In this case, the railroads filed an incomplete petition on January 19, 1983. According to the briefs, the incompleteness was corrected by the subsequent filing of one additional page by mail on January 28, 1983. The ICC’s official record indicates it was filed by the railroads, by letter, on “2/2/83” (JA 03). Furthermore, the “Record before the Utah [Public Service Commission]” was not filed until “2/8/83” (JA 03). The ICC’s decision is dated February 25, 1983, but it was not served until March 2, 1983 (JA 04). Upon these facts, we must concur with the ICC that time did not start to run against the ICC úntil the complete petition was filed, on January 28 at the earliest. It would be folly to start the running of the prescribed time for decision before a complete petition is filed.

As to when the period ended, Utah Power points to 49 U.S.C. § 10327(i) of the Staggers Act, which provides that “an action of the Commission ... is final on the date on which it is served ____” In response, the ICC relies on Union Pacific Railroad v. United States, 637 F.2d 764 (10th Cir.1981). Faced with a closely analogous situation, the Tenth Circuit ruled that section 10327(i) relates to the time limit for “judicial review,” not for the decision, and that the date “the decision was entered” by the Commission was the date to be considered for the purposes of the 30 day limitation set by section 11501(c). Id. at 767. Appellant urges that the Tenth Circuit case was wrong. Brief for Utah Power at 22. We disagree. We too interpret section 10327(i) only to provide the date when time will start running for the purpose of computing the time limits for rehearing and review. Accordingly, the ICC having rendered its decision on February 25, 1983 (JA 584), it ruled before expiration of the allotted statutory period.

Utah Power hypothesizes that if the court approves of this delay then the ICC could get away with delays of “50, 75, or 100 days ...” Brief for Utah Power at 23. Delay to that extent is not before us, and we are not disposed to render a curbstone opinion thereon. We rule only that, where the ICC renders a decision that is within the statutory period, the statute is satisfied, and subsequent minor delay in serving the decision does not negate the timeliness of the decision.

III. The ICC Review of the Utah Commission Proceedings: Standards of Review

A. The Standards for ICC Review of State Commission Decisions

In its central attack on the ICC decision, Utah Power argues that the ICC exceeded the scope of its authority in purportedly conducting a de novo review of the proceedings and decision of the Utah Commission. “[J]ust as a reviewing court whose function is similar to that of the ICC under § 11501(c) in the sense that both bodies are charged with ensuring that an agency follows the governing statute,” asserts Utah Pow;er, “the ICC was not intended to act ‘as though it were conducting a trial de novo.’ New York v. United States, 331 U.S. 284, 335 [67 S.Ct. 1207, 1234, 91 L.Ed. 1492] (1947).” Utah Power Brief at 29. In support of its argument, Utah Power seizes on a reference to the ICC’s role under section 11501(c) as “quasi-appellate,” Illinois Central Gulf Railroad v. ICC, 702 F.2d 111, 114 (7th Cir.1983), and also relies upon the recent opinion of the Sixth Circuit in Kentucky Utilities Co. v. ICC, 721 F.2d 537 (6th Cir.1983). Finally, petitioner contends that because the statute requires completion of ICC review within 30 days, Congress in requiring such prompt deeisions could not have intended the ICC to conduct a searching and thorough inquiry of state proceedings and decisions.

The statutory standard of review governing the ICC in this case is set forth in section 11501(c), supra. In authorizing the ICC to review the “lawfulness” of the rate, that provision establishes a broad basis for appeal because it permits petitioners to attack any “standard[] or procedure” applied by the state for noncompliance with the applicable provisions of the Staggers Act. In addition, as the ICC ably points out, Utah Power and the Utah Commission “ignore[] the statutory language” which requires that the ICC delve substantially further into the matter:

Section 11501(c) does more than direct the ICC to review state decisions to see that the “standards and procedures” applied are “in accordance with” the federal statute. If the ICC finds that the state applied incorrect “standards and procedures,” it must also “determine ... the appropriate rate” (emphasis added). The ICC obviously could determine that the “appropriate” rate was neither that proposed by the railroad (if the rate were shown to be unreasonably high) nor that ordered by the state (if that