STB Unlikely To Freely Wield New Investigative Power

Share us on: By Linda Chiem
Law360, New York (May 20, 2016, 5:59 PM ET) — The Surface Transportation Board’s newfound ability to initiate railroad investigations on its own is another tool to challenge major rate or service disruptions, experts say, but rail shippers won’t get much relief from the status quo or see a flood of new proceedings because of the board’s limited resources.

After Congress broadened the STB’s authority last year, the federal rail regulator on Monday proposed a three-step process for how it will launch investigations into railroads on issues considered to be of national or regional significance, establishing another potential avenue to pursue freight railroads for any major service disruptions or sweepingly burdensome tariffs they may impose on shippers.

But it’s an investigative authority that the STB won’t likely wield too often, experts say, given its limited resources and already full docket, a potential board shakeup by year’s end, and the high bar for what would qualify as a nationally or regionally significant issue worth investigating.

Even though the STB’s new investigative authority is limited, it is a helpful additional tool that allows the STB to initiate its own investigation without a shipper having to stick its neck out and file a formal complaint against the freight railroads.

“A lot of shippers are reluctant [to complain] and don’t want to have a spotlight shined on them,” Thompson Hine LLP partner Jeff Moreno told Law360. “Many shippers are very worried about railroad retribution so they complain through back channels or the STB’s office of customer assistance. So if the STB is getting a lot of complaints on a particular issue, they can be proactive now.”

The STB, the federal regulatory body that oversees railroad rates, mergers, line acquisitions, new rail-line construction, line abandonment and other rail matters, has an approximately 150-strong staff and an annual budget that hovers around $31 million, leaving it little room or resources to chase down investigations on its own.

“How widely or broadly the STB uses this authority is going to be resource-dependent,” Moreno said. “And if the STB is getting a lot of [political] pressure to address an issue, I think that’s when you will see some responsiveness.”

Even once the STB finalizes its proposed rule laying out the three-step process for initiating investigations, which is expected by the end of the year, it likely will take things slow.

“I would expect the board to be very judicious and cautious in exercising the authority,” said Kelvin Dowd, a partner with Slover & Loftus LLP. “I would not expect them to suddenly turn into an aggressive freewheeling investigatory agency.”

Meanwhile, smaller shippers and local municipalities may be the ones to benefit the most from the STB’s expanded investigatory authority when they have problems they cannot work out with the freight railroads on their own, or when they can’t justify the cost of mounting a formal complaint, experts say.

Larger shippers already have access to the formal complaint procedures at the STB — which can suck up attorney time and money but also theoretically result in larger payoffs than an investigation.

“It seems unlikely that the STB will convene many, if any, proceedings under this authority, especially those of interest to shippers, because the shippers can always file a complaint, petition or what-have-you at the STB, and get more relief (at least in theory) than can be provided in an investigative proceeding,” said Michael F. McBride, a partner at Van Ness Feldman LLP.

“Also, the STB has not shown, at least in the past, much interest in getting aggressive for shippers, when the shippers were thought entirely able to look out for themselves,” McBride added.

Under the proposed rule, if the STB gets wind of a major rail issue either through tips or other informal back channel complaints, it can start doing some preliminary fact-finding where staff members would conduct a confidential inquiry into the issue to determine whether it’s a violation that rises to the level of being nationally or regionally significant.

If it fits the bill, which experts say is a high bar, the STB would issue an order of investigation laying out the reasons for starting one. The STB’s investigating officers would be able to interview witnesses, inspect property and facilities, and request that any information and records be handed over.

Those investigating officers would have 275 days from the time the order of investigation is issued to wrap up their findings and recommendations to present to the full board. From there, the STB can decide whether to open a public formal board proceeding.

“It’s important to remember under the proposed rule the board has a very limited amount of time and limited range of actions it can take without opening up a formal proceeding,” Dowd said. “They have limited time where they either have to shut it down or open a formal proceeding, and it’s important because the agency wants to protect the due process rights of a railroad or whatever party.”

The STB can only start digging into matters of national or regional significance. That might include major rail service disruptions, like those seen in the Chicago area following severe winter storms two years ago, or a failure to provide service to a particular market, or even burdensome contracts that apply to large swaths of shippers, experts say.

“It would have to be a fairly notorious [issue] for them to exercise their authority,” Dowd said.

When Congress reauthorized the STB in December, it marked the first time the board was reauthorized and substantively reformed since its creation in 1996. In addition to the new investigative powers it granted the STB, the law also reshaped the makeup of the board, expanding it from the current three members to five members.

But with the upcoming presidential election and other pressing matters on the Hill, it will be some time before the nomination and confirmation process for any new additional members gets finalized, so the STB won’t see its board filled out anytime soon, experts say, again leaving the agency prioritizing its already limited resources to handle its docket.

The STB’s current three members include chairman Daniel R. Elliott III, whose four-year term expires Dec. 31, 2018, vice chairman Deb Miller, whose term expires Dec. 31, 2017, and member Ann Begeman, whose term technically expired at the end of 2015 but is allowed under the board’s governing statute to stay on for one year after that unless a successor is appointed. So Begeman’s holdover period is expected to expire at the end of this year.

That leaves the STB in a tight spot to effectively move proceedings forward and render decisions.

“At the end of this year, regardless if she wants to stay on, she has to leave the office; I think we are going to have a two-member board come Jan. 1 no matter what,” Moreno said. “We won’t even have a quorum.”

–Editing by Jeremy Barker and Philip Shea.