         Case: 16-15701   Date Filed: 01/26/2018   Page: 1 of 8


                                                      [DO NOT PUBLISH]



          IN THE UNITED STATES COURT OF APPEALS

                  FOR THE ELEVENTH CIRCUIT
                    ________________________

                          No. 16-15701
                    ________________________

                          Agency No. 42130



SUNBELT CHLOR ALKALI PARTNERSHIP,

                                                          Petitioner,

                                versus


SURFACE TRANSPORTATION BOARD,
UNITED STATES OF AMERICA,

                                                          Respondents,

NORFOLK SOUTHERN RAILWAY COMPANY,

                                                          Intervenor.

                    ________________________

               Petition for Review of a Decision of the
                     Surface Transportation Board
                     ________________________

                          (January 26, 2018)
               Case: 16-15701      Date Filed: 01/26/2018   Page: 2 of 8


Before WILLIAM PRYOR, JILL PRYOR and ANDERSON, Circuit Judges.

PER CURIAM:

      Sunbelt Chlor Alkali Partnership petitions for review of the Surface

Transportation Board’s decision that the rate Norfolk Southern Railway Company

charges Sunbelt is reasonable. After careful review and with the benefit of oral

argument, we deny the petition for review.

                              I.      BACKGROUND

      Sunbelt manufactures chlorine in its plant in McIntosh, Alabama and ships

its product by rail from the plant to LaPorte, Texas. For the first leg of the route,

from McIntosh to New Orleans, Louisiana, Norfolk Southern is the only available

rail service provider. In July 2011, Sunbelt filed a complaint before the Board

challenging as unreasonable the rate for this leg of the route. To support its claim,

Sunbelt used the Board’s stand-alone cost (“SAC”) test, which requires the

complaining shipper to create a hypothetical, stand-alone railroad (“SARR”).

Under the SAC test, if the existing railroad’s challenged rate exceeds the amount

the SARR would need to charge to serve the shipper, cover the SARR’s costs, and

earn a reasonable return on investment, the rate is unreasonable.

      As required by the SAC test, in its opening evidence Sunbelt proposed a

SARR along with a detailed operating plan, which it contended showed that

Norfolk Southern’s rate was unreasonable. Relevant here, Sunbelt’s plan proposed


                                           2
              Case: 16-15701    Date Filed: 01/26/2018   Page: 3 of 8


a hub at Birmingham, which lies between McIntosh and New Orleans. At the

Birmingham hub, Sunbelt chose not to include a hump yard, which would be more

expensive to construct but more efficient at managing high rail car traffic. Sunbelt

also proposed that the SARR would amortize its debt by making quarterly interest-

only payments (“coupon method”).

      In response, Norfolk Southern submitted its own operating plan for the

SARR, which it contended showed that the rate it charged Sunbelt was reasonable.

Notably, that plan included a hump yard at Birmingham to manage traffic. Norfolk

Southern also proposed the standard debt amortization method under Board

precedent, which would require the SARR to pay down its debt gradually over

time, similar to payments on a mortgage. By including the Birmingham hump yard

and having the SARR pay both interest and principal on its debt, Norfolk

Southern’s proposal was considerably more expensive than Sunbelt’s. On rebuttal,

Sunbelt continued to maintain that a hump yard at Birmingham was unnecessary

and that it had properly accounted for the SARR’s expenses regarding its debt.

      Evaluating the parties’ competing proposals, the Board determined, and

Sunbelt does not challenge here, that the SARR needed a hump yard at

Birmingham to serve the traffic. The Board explained that this “major design

flaw” rendered Sunbelt’s plan infeasible: therefore, the Board accepted Norfolk




                                         3
                     Case: 16-15701        Date Filed: 01/26/2018        Page: 4 of 8


Southern’s operating plan. Decision at 13 (JA 1036).1 Additionally, the Board

rejected Sunbelt’s method of debt amortization as inconsistent with the SAC test,

adopting Norfolk Southern’s proposal instead. After conducting the SAC analysis

using Norfolk Southern’s operating plan and debt amortization method, the Board

concluded that Sunbelt had failed to demonstrate that the rate Norfolk Southern

charged was unreasonable.

         Sunbelt petitioned the Board for reconsideration. Sunbelt argued that once

the Board determined a hump yard was necessary, the Board should have

incorporated a hump yard into Sunbelt’s operating plan, rather than accepting

Norfolk Southern’s plan. Sunbelt also argued that the Board erred in rejecting

Sunbelt’s use of the coupon method to amortize its debt. The Board rejected

Sunbelt’s arguments.

         Sunbelt now petitions this Court for review of the Board’s order.

                                 II.    STANDARD OF REVIEW

         The Administrative Procedure Act requires federal courts to “hold unlawful

and set aside agency action, findings, and conclusions” that are “arbitrary,

capricious, an abuse of discretion, or otherwise not in accordance with law.”

5 U.S.C. § 706(2)(A). To make this determination, courts must “consider whether

the decision was based on a consideration of the relevant factors and whether there

         1
             Citations to material in the administrative record are to the joint appendix filed in this
Court.
                                                      4
              Case: 16-15701       Date Filed: 01/26/2018   Page: 5 of 8


has been a clear error of judgment.” N. Buckhead Civic Ass’n v. Skinner, 903 F.2d

1533, 1538 (11th Cir. 1990) (internal quotation marks omitted).

                               III.    DISCUSSION

      The Board regulates the rates charged by interstate railroads. See BNSF Ry.

Co. v. Surface Transp. Bd., 526 F.3d 770, 773 (D.C. Cir. 2008). When a single

railroad exercises “market dominance,” meaning there is an “absence of effective

competition from other rail carriers or modes of transportation” in the relevant

market, a party may bring a complaint before the Board challenging the railroad’s

rate. 49 U.S.C. §§ 10701(d)(1), 10707(a)-(b). The Board then determines whether

the rate charged by the railroad is reasonable.

      Here, the parties agree that Norfolk Southern exercised market dominance

for the route from McIntosh to New Orleans, meaning the Board had the authority

to review Sunbelt’s challenge to the rate for this route. The parties disagree over

the Board’s determination that Norfolk Southern’s rate was reasonable.

      Sunbelt argues that the Board’s decision was arbitrary and capricious for two

reasons. First, it argues that the Board should have inserted Norfolk Southern’s

hump yard into Sunbelt’s proposed plan, creating a hybrid plan, rather than

accepting Norfolk Southern’s plan. Second, it argues that the Board erred in

accepting Norfolk Southern’s method for debt amortization over Sunbelt’s. We

address these arguments in turn.


                                           5
                Case: 16-15701       Date Filed: 01/26/2018      Page: 6 of 8


A.     The Hump Yard

       Sunbelt argues that once the Board determined that a hump yard was

necessary at Birmingham, it should have substituted a hump yard for the flat yard

in Sunbelt’s operating plan, instead of accepting Norfolk Southern’s plan. We

disagree.

       After Norfolk Southern proposed the hump yard in its operating plan,

Sunbelt could have modified its own plan to include a hump yard. Instead, in its

rebuttal brief, Sunbelt continued to oppose the addition of a hump yard. It was

only in its petition for reconsideration, after the Board’s decision in Norfolk

Southern’s favor, that Sunbelt for the first time argued that the Board should create

a hybrid plan. But as the Board explained in its decision denying reconsideration,

the Birmingham hump yard was the “keystone to the entire system’s

functionality,” so the Board could not “simply try to stitch [Norfolk Southern’s]

hump yard onto Sunbelt’s operating plan . . . without requiring additional changes

to evidence that the Board was not in a position to make.” Recons. Decision at 4-5

(JA 1340-41). Indeed, doing so would have required the Board to assess

independently the hump yard’s impact on the complex Rail Traffic Controller

(“RTC”) model,2 as well as the added costs to the operating plan.



       2
         The RTC is a computer program that tests the feasibility of the infrastructure in the
operating plan. As the Board has explained, the RTC “provides essential evidence to support a
                                               6
                Case: 16-15701       Date Filed: 01/26/2018      Page: 7 of 8


       We agree with the Board that, after making the tactical choice to oppose the

addition of a hump yard until its petition for reconsideration, “Sunbelt may not

now claim error” based on the Board’s failure to incorporate a hump yard into

Sunbelt’s SARR. Id. at 6 (JA 1342). Although we agree with Sunbelt that the

Board is more than a passive arbiter, it is not required “to identify alternatives that

parties did not identify, particularly when . . . the effect of those changes is

unclear.” Id. at 6-7 (JA 1342-43). Therefore, we cannot say that the Board’s

decision to reject Sunbelt’s proposal on reconsideration to incorporate a hump yard

into Sunbelt’s operating plan was arbitrary or capricious.

B.     Debt Amortization

       Sunbelt also argues that the Board erred in adopting Norfolk Southern’s

proposal for debt amortization. Again, we disagree. The parties proposed different

plans for paying off the SARR’s debt. Sunbelt proposed the coupon method, under

which the SARR would make interest-only payments and then take on new debt as

the principal became due. Norfolk Southern, by contrast, proposed that the SARR

would pay off the principal gradually over time, along with decreasing interest

payments. The Board selected Norfolk Southern’s proposal, determining that

Sunbelt’s coupon method would allow the SARR to avoid paying for its assets in




SARR’s configuration and certain broader operating statistics.” Recons. Decision at 5 (JA
1341).
                                               7
              Case: 16-15701     Date Filed: 01/26/2018   Page: 8 of 8


violation of the SAC test, which assesses “whether the SARR can pay the cost of

constructing, maintaining and operating its system.” Decision at 191 (JA 1214).

According to the Board, Norfolk Southern’s proposal was consistent “with long-

standing policy.” Recons. Decision at 10 (JA 1346).

      Sunbelt argues that it was arbitrary and capricious for the Board to reject its

plan for interest-only debt amortization in favor of Norfolk Southern’s mortgage-

style proposal because requiring the SARR to pay its principal constitutes a barrier

to entry—which “must be omitted from the SAC analysis”—because existing

railroads use the coupon method. Decision at 5 (JA 1028). As the Board noted,

however, allowing the SARR to pay only interest would “abandon the fundamental

structure of the SAC test.” Id. at 191 (JA 1214). Furthermore, under “Board

precedent . . . the SARR’s debt payments contain an interest component and a

principal component, and the interest portion decreases as the debt is amortized

over time.” Id. Sunbelt points to no case where the Board applied a different debt

amortization method than the one Norfolk Southern proposed. We therefore

cannot conclude that the Board’s decision to apply that method here was arbitrary

and capricious.

                               IV.   CONCLUSION

      For the reasons set forth above, we deny Sunbelt’s petition for review.

      DENIED.


                                          8
