THE IMPLEMENTATION OF COMPLEX, REMEDIAL REGULATIONS: THE ICC GATEWAY ELIMINATION POLICY PHILIP L. O'NEILL * I. Introduction In the past century Congress has delegated broad authority to the Federal regulatory agencies to monitor the public interest in various commercial areas. As the demand for governmental supervision of the public welfare has grown, so also has the public perception that the agencies have performed far short of the ideals originally set for them.1 It may be that these competing values can never be reconciled but only catalogued. In this way, the subjects of the ongoing debate over regulation may be divided conveniently according to whether attention is focused upon the wisdom of an agency's substantive policies or the fairness of its decision-making processes for affected parties. At present, courts and commentators often assert that the formation of both prudent and just policy depends upon increased use by the agencies of procedures that promote public participation in program development. This view, in turn, is complemented by their awareness that the exercise of agency discretion by formal or informal means should be accompanied by greater articulation of standards and reasons for particular decisions. Regardless of the form taken by recommendations to improve the administrative process, however, the task of revitalizing regulation must begin through exposure of agency actions on levels traditionally removed from public visibility and judicial oversight.2 This essay provides an overview of the major events and issues surrounding the Interstate Commerce Commission's new gateway elimination policy. The gateway regulations are a proper focus of concern not only because they represent a dramatic reversal of policy, but also because the Commission has devised innovative procedures for *First place winner ($1,250.00) of the 1976 Clyde B. Aitchison Essay Contest. Mr. O'Neill received his A.B. in Political Science, University of Chicago, 1974; candidate for J.D. degree, Georgetown University Law Center, May 1977; and Editor of the Georgetown Law Journal. I wish to acknowledge E. Stephen Heisley, Karl Sonneman, and Beth Purcell, attorneys for Ames, Hill & Ames, P.C., who were willing and expert subjects for testing my ideas about gateways. Of course, I take full responsibility for the views presented here. 1 Compare R. Fellmeth, The Interstate Commerce Commission 1-39 (1970) with IV I. Sharfman, The Interstate Commerce Commission 343-88 (1937). 2 See generally Stewart, The Reformation of American Administrative Law, 88 Harv. L. Rev. 1667 (1975). implementing them. The following discussion constructs a framework for analyzing the impact of the regulations upon the motor carrier industry. II. Background: The Energy Crisis and In 1961, the Commission instituted a rulemaking proceeding to consider the feasibility of modifying its "tacking" policy to require common carriers who were performing circuitous gateway operations to forego observing the gateway point and use the shortest and most convenient routes to their destinations.* In concluding that such action would not be in the public interest, the Commission found that since the plan would allow carriers to institute new and competitively destructive operations without the statutory showing that the services were required by the public convenience and necessity, it would negate the agency's effort to foster sound economic conditions in the industry. The Commission also asserted that existing gateway elimination procedures were adequate to meet the legitimate needs of carriers desiring to perform direct services.5 A little more than a decade later the Commission abandoned its previous position and implemented some of the most far-reaching regulations in the motor carrier field since the passage of the Motor Carrier Act of 1935. Aware of the rising costs and reduced supplies of fuel transported and used by motor carriers, as well as general economic and environmental concerns, the Commission sought to promulgate appropriate regulations within its sphere of delegated responsibilities." Among other actions, the Commission has proposed legislation to Congress that would clarify and expand its jurisdiction to authorize adequate compensation to owner-operators for increased fuel costs in a transportation emergency. Of all of the actions taken by the Commission in response to the nation's energy crisis, however, the gateway elimination procedures have had the most pervasive and enduring impact upon the industry. III. The Gateway Elimination Rulemaking By joint petition filed March 21, 1973, some forty-two motor common carriers requested the Commission to institute a rulemaking pro 3 See Bernard, Tacking or Combining of Interstate Operating Rights, 26 ICC Prac. J. 521 (1959). 4 Ex Parte No. 55 (Sub-No. 8) Motor Carriers of Property-Routes and Services, 88 M.C.C. 415, 419-21, 435 (1961) (Propositions 1-3, 5). 5 Id. at 425-27. 6 See Schack, The ICC Energy Policy and Procedures, 41 ICC Prac. J. 659 (1974). 7 See Ex Parte No. 301, The Energy Crisis and the Need for Emergency Transportation Legislation, 349 I.C.C. 699, 717-24, 731-40 (1975). The report also contains a summary of energy related actions taken by the Commission. See id. at 702-05. ceeding to formulate regulations permitting direct operations between any two points they were authorized to serve without the necessity of observing a gateway point. The carriers reasoned that elimination of circuitous routings would aid greatly in reducing highway congestion, fuel consumption, and air and noise pollution. The Commission thereupon instituted an investigation into the proposed rulemaking and invited public comment. In order to evalute the environmental and economic effects of the general proposal, the Commission urged interested parties to submit representations concerning the cost and fuel savings that might accrue by elimination of gateways then being observed.10 Following receipt of those views, which appeared to demonstrate that significant economics would result from the proposal, the Commission issued notice of a formal rulemaking procedure. In that notice the Commission indicated its inclinations concerning the proposal by formulating provisional regulations. Rejecting the primary relief sought by the petitioners, the Commission itself proposed a mandatory, nationwide rule whereby all irregular route carriers who desired to eliminate gateways would be required to file applications for permission to do so. As a further measure, the Commission proposed to prohibit all tacking by irregular route carriers where no application was filed or permission was denied, and to compel proof on a public record that the public convenience and necessity required continuation of a particular gateway service if the operating circuity exceeded a "20-percent rule. The regulations were adopted several months later without basic change in their provisions.13 12 8 Petition for Initiation of a Rulemaking, Ex Parte No. 55 (Sub-No. 8); see 32 Fed. Reg. 10851-52 (1973) (notice of petition and description of primary relief sought and four alternative proposals). 9 See Petition at 5-18. The carriers argued that the Commission was required to take account of the duties imposed upon all Federal agencies under the National Environmental Policy Act, which would include the filing of an environmental impact statement if the agency decided to deny the petition. See id. at 24. Although the Commission never reached this argument since it granted the petition, the analysis might be sustained by the courts if it arose. Cf. City of New York v. United States, 337 F. Supp. 150 (E.D. N.Y. 1972). 10 See 32 Fed. Reg. 10851-52 (1973). 11 Notice and Order of Proposed Rulemaking, Ex Parte No. 55 (Sub-No. 8) Motor Common Carriers of Property, Routes and Service (Petition for Elimination of Gateways by Rulemaking) [hereinafter cited as Gateway Elimination], 119 M.C.C. 170 (1973). 12 See id. at 191-98. The regulations proposed two types of applications based upon the circuity involved in a tacking operation, which could be determined by comparing the direct mileage against the mileage through the gateway. If gateway circuity did not exceed 20-percent, the gateway could be eliminated simply by filing a "letter-notice" of intent and showing that the operations qualified under the circuity limitation. If the circuity were greater than 20-percent, the carrier would be required to file an OP-OR-9 application, which involved the far more rigorous test of public convenience and necessity as construed by the Commission in Childress-Elimination of Sanford Gateway, 61 M.C.C. 421, 428 (1952). 13 See Gateway Elimination, 119 M.C.C. at 530; 49 C.F.R. § 1065 (1975) (codification of the new gateway elimination regulations). The new gateway policy raises important theoretical and practical issues. As an initial matter, the Commission should be lauded for its willingness to review and liberalize its earlier position that all gateway operations, even those involving minimal circuity, are qualitatively different than direct operations. However, the actual considerations behind the Commission's decision to treat gateway operations involving less than 20-percent circuity as competitive per se-so similar to direct operations that elimination of a gateway would not result in a new service are not clear from the record. There is much language in the Commission's reports to the effect that the 20-percent rule would not affect the realistic competitive balance in the industry.14 Thus, the Commission was influenced by the view that a higher percentage figure might result in a windfall to carriers who, through route and merger extensions, had come to possess operating rights combinations allowing unnaturally circuitous services for which no public need had been established.1 15 Yet the Commission also observed that competitive services entailing greater than 20-percent circuity usually had arisen where no existing direct carriers offered satisfactory services.16 Throughout the Commission's reports there is no satisfactory analysis of exactly why the 20-percent rule was preferable to a higher or lower standard. Whether the 20-percent rule accurately reflected the competitive practices of the irregular route industry or rather represented a compromise between the Commission's desire to save fuel and its perceived need to preserve the traditional formula of limited entry is unanswered.17 Results from numerous applications filed pursuant to the new regulations show that many carriers have had difficulty conforming to the regulations within the time period for filing.18 Although the application procedures are described in simple terms in the regulations, both types of applications clearly comprehend large and complex evidentiary showings by the carriers. For a carrier possessing even a modest number of certificates, the process of identifying and preparing applications often was a cumbersome administrative task. While the Commission adopted a lenient attitude in allowing carriers to cure defects in letternotice applications after they were submitted, the opposite was true for OP-OR-9 applications: failure to conform strictly to the regulations 14 See Gateway Elimination at 537-43. 15 See id.; see also Bowman Transp., Inc., Extension-Substitution of Gateways, 100 M.C.C. 314, 325-28 (1965); Martin Van Lines, Inc., Extension12 States, 79 M.C.C. 767, 771 (1959). 16 See Gateway Elimination at 543. 17 See id. at 192-93. In addition to raising the substantive burdens of proof contained in the Childress case into a national, mandatory scheme, the Commission also may have been influenced considerably by its factual setting. In Childress, the Commission denied an application to eliminate a gateway where the proposed mileage saving ranged from 23 to 29 percent, finding that direct service would alter the competitive situation in one-way movements of 300 miles or more. See 61 M.C.C. at 428. 18 See, e.g., Paramount Moving & Storage Co., Inc., ICC No. MC-17600 (Sub-No. 4G) (unprinted), served April 17, 1975. almost invariably resulted in outright dismissal.19 On general grounds this policy is difficult to defend. Assuming that the regulations were intended to improve fuel economy and to allow carriers to conduct more efficient operations, there would not seem to be a valid regulatory purpose behind construing the regulations harshly so as to limit the benefits conferred. By suggesting that "diligent" carriers would not have difficulty in complying with the regulations, however, the Commission undoubtedly intended to limit the benefits and to reduce the problem of regulatory lag.20 Since the agency's attitude towards correcting the many mistakes made in applications has turned upon the type of application filed, the soundness of the 20-percent rule takes on increased significance. IV. Judicial Review of the Rulemaking Shortly after adoption of the new regulations, several motor carriers brought a court challenge to the legality of the Commission's decision to formulate that policy through a rulemaking rather than individual adjudications. În Thompson Van Lines v. United States,1 the carriers alleged that the gateway regulations modified their certificated rights in contravention of a provision of the Interstate Commerce Act that requires an adjudicatory hearing before the Commission takes such action.22 The court rejected the carriers' claims, finding that the carriers' reliance upon the Commission's prior policy allowing unrestricted tacking did not amount to a certificated right and, even if it did, that the Commission was empowered to employ rulemaking to alter its general policy.23 The handwriting was on the wall well before the Thompson appeal. In the last decade courts frequently have upheld agency informal rulemakings where opposing parties alleged only that trial-type adjudicatory hearings were required by statute. In part, this trend reflects both judicial recognition of the need for administrative flexibility and the enthusiasm of scholars for the use of rulemaking to decide broad questions of policy. The courts also have indicated approval of a "hybrid" model of informal rulemaking in which supplemental procedural protections of the sort associated with formal rulemaking or adjudication under 19 See note 44 infra and accompanying text. See also Cedar Rapids Steel Transp., Inc., I.C.C. No. MC-21170 (Sub-No. 270G) (unprinted), served Feb. 20, 1975; Heritage Van Lines, Inc., I.C.C. No. MC-22296 (Sub-No. 5G) (unprinted), served Feb. 20, 1975. 20 See Gateway Elimination at 545. 21 399 F. Supp. 1131 (D. D.C. 1975), aff'd mem., 44 U.S.L.W. 3396 (U.S. Jan. 13, 1976). The three-judge district court earlier had denied the carriers' all-important petition for temporary restraining order. See 381 F. Supp. 184 (D. D.C. 1974). 22 399 F. Supp. at 1134; see 49 U.S.C. § 312 (1970). 23 See 399 F. Supp. at 1134-36. 24 See Note, The Use of Agency Rulemaking to Deny Adjudications Apparently Required by Statute, 54 Iowa L. Rev. 1086, 1087-1102 (1969). |