Grand Trunk Corporation v. SURFACE TRANSPORTATION BOARD and UNITED STATES OF AMERICA

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 24-1811
G RAND T RUNK C ORPORATION, et al.,
Petitioners,
v.
S URFACE T RANSPORTATION B OARD and U NITED STATES OF
A MERICA ,
Respondents,
and
NATIONAL I NDUSTRIAL T RANSPORTATION
LEAGUE , et al.,
Intervening Respondents.
____________________
Petition for Review of a Final Rule of the
Surface Transportation Board.
No. EP 711 (Sub-No. 2)
____________________
A RGUED J ANUARY 16, 2025 — D ECIDED J ULY 8, 2025
____________________

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2 No. 24-1811
Before SCUDDER , KIRSCH , and LEE , Circuit Judges.
S CUDDER , Circuit Judge. Before us is a petition challenging
a Final Rule promulgated by the Surface Transportation
Board following a notice-and-comment period. At its most
basic level, the Final Rule allows a railway shipper or receiver
to request what the Rule calls a “reciprocal switching agree-
ment”—a regulatory tool the Board can use to require a rail
carrier that has a monopoly over a certain rail line to compete
with another carrier for particular rail traffic.
Several rail carriers contend that the Final Rule exceeds the
Board’s statutory authority under the Staggers Rail Act of
1980, the statute in which Congress granted the agency au-
thority to prescribe reciprocal switching. The carriers also ar-
gue that specific aspects of the Final Rule exceed the Board’s
ancillary powers conferred by its enabling statute and, sepa-
rately, are arbitrary, capricious, and unsupported by the rec-
ord.
By its terms, the process the Final Rule prescribes to obtain
a reciprocal switching agreement does not require a determi-
nation by the Board that an existing carrier’s rail service is in-
adequate. Because we interpret the Staggers Rail Act to re-
quire such a finding, this shortcoming compels us to conclude
that the Rule exceeds the Board’s statutory authority. So we
grant the petition and vacate the Final Rule.
I
A
We begin with the commercial context that underlies this
dispute. The United States rail system is expansive. Spurred
by Manifest Destiny, the California Gold Rush, and the Civil
War, Americans began exploring ways to connect the nation

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No. 24-1811 3
by rail in the middle of the nineteenth century. See Leo Sheep
Co. v. United States, 440 U.S. 668, 670–77 (1979). A transconti-
nental railroad, many believed, would “bind together the
widely separated parts of our common country, and furnish
a cheap and expeditious mode for the transportation of troops
and supplies.” United States v. Union Pac. R.R., 91 U.S. 72, 80
(1875).
In 1862 Congress passed and President Lincoln signed into
law “[a]n Act to aid in the Construction of a Railroad and Tel-
egraph Line from the Missouri River to the Pacific Ocean.”
Act of July 1, 1862, ch. 120, 12 Stat. 489. Construction of the
first transcontinental railroad began the next year and opened
for service in 1869. From there progress abounded. More than
600 freight rail carriers operate in the United States today,
forming an integrated network that spans nearly 140,000
miles of track across the country. See Overview of America’s
Freight Railroads, Ass’n of Am. R.Rs. 1 (Mar. 2020),
https://www.aar.org/wp-content/uploads/2018/08/Overview
-of-Americas-Freight-RRs.pdf. In 2023 alone, freight rail con-
tributed $233.4 billion to the national economy. See Freight
Rail History, Ass’n of Am. R.Rs. 10, https://www.aar.org/wp-
content/uploads/2020/07/AAR-Chronology-Americas-Freigh
t-Railroads-Fact-Sheet.pdf (last visited July 7, 2025).
The Surface Transportation Board is the federal agency
tasked by Congress with regulating freight rail transporta-
tion. The Board categorizes rail carriers into three classes,
Class I, Class II, and Class III, based on each carrier’s annual
operating revenue. Class I rail carriers generate the most rev-
enue and Class III carriers the least.

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4 No. 24-1811
B
This dispute arises out of concerns about the service per-
formance of Class I rail carriers. Like many aspects of the
American economy, railroads were not immune from the
workforce challenges of the COVID-19 pandemic. In April
2022, citing widespread concern about service problems with
several Class I carriers, the Board convened a two-day hear-
ing to explore and address issues related to the reliability of
the national rail network. See Notice of Public Hearing, 87
Fed. Reg. 22009 (Apr. 13, 2022). The Board then required sev-
eral Class I carriers to submit service recovery plans explain-
ing the specific actions each carrier planned to take to im-
prove its service. See Urgent Issues in Freight Rail Serv.,
No. EP 770 (Sub-No. 1), 2022 WL 1442915 (S.T.B. May 6, 2022).
In time the Board determined that incentivizing Class I
carriers to achieve and maintain higher service levels required
further regulatory action. So the Board issued a notice of pro-
posed rulemaking, seeking comment on a set of new regula-
tions that sought to improve service by increasing competi-
tion. See Reciprocal Switching for Inadequate Service, 88 Fed.
Reg. 63897 (proposed Sept. 18, 2023).
After receiving and considering a significant number of
comments to the proposed rule, the Board promulgated the
Final Rule now before us: Reciprocal Switching for Inade-
quate Service, 89 Fed. Reg. 38646 (May 7, 2024) (codified at 49
C.F.R. pt. 1145).
C
The Final Rule and its accompanying regulations establish
procedures through which a shipper or receiver can request,
and the Board in turn can prescribe, a reciprocal switching

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No. 24-1811 5
agreement. How this scheme works requires some unpack-
ing.
Unlike motor freight, which utilizes government-main-
tained roadway infrastructure, rail freight operates largely on
infrastructure privately owned and maintained by railroad
companies. So, continuing with the analogy, while one truck-
ing company cannot exclude another from using interstate
highways funded by taxpayer dollars, a rail carrier generally
can refuse to allow another carrier to access its tracks. This
matters because some shippers and receivers are geograph-
ically located such that the tracks of only one rail carrier reach
their commercial facilities.
Shippers and receivers with physical access to just one
railroad are captive to that single carrier, which the Final Rule
calls the “incumbent” carrier. The incumbent alone can take
that customer’s freight from the facility to its destination (or
to the limits of the incumbent carrier’s rail network) and, as a
result, will charge the customer for the entire movement. The
incumbent thus holds a monopoly over rail shipments to and
from that facility.
Reciprocal switching provides a captive customer with ac-
cess to an alternate railroad pursuant to an agreement be-
tween the incumbent carrier and one of its competitors. When
a shipper or receiver relies on a reciprocal switching agree-
ment, the incumbent carrier only takes freight from its point
of origin—the customer’s facility—to the tracks of another
carrier. This movement is called a “switch.” From there the
freight transfers to a competitor carrier, which completes the
transportation to the destination. This longer movement from
the switch to the final destination is called the “line haul.”

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6 No. 24-1811
A reciprocal switching agreement can also work in the re-
verse: after a competitor rail carrier completes the line-haul
movement, the freight is then transferred to the incumbent for
switching service to the final destination. In either case, the
competitor pays the incumbent carrier a fee for the switching
service but keeps the greater share of revenue from the cus-
tomer for the line-haul service.
The Final Rule requires the transfer of freight to occur
within a “terminal area”—defined as a “commercially cohe-
sive area in which two or more railroads engage in the local
collection, classification, and distribution of rail shipments for
purposes of line-haul service.” 89 Fed. Reg. 38646, 38677; 49
C.F.R. § 1145.1. And a shipment’s point of origin or final des-
tination on the rail system must be within a terminal area to
be eligible for a reciprocal switching agreement. See 89 Fed.
Reg. 38646, 38676; 49 C.F.R. § 1145.1.
Railroads sometimes voluntarily agree to a reciprocal
switching arrangement with another carrier. But absent a
Board order, they are not required to do so. The Final Rule
establishes a framework under which the Board can compel
an incumbent Class I carrier to enter a reciprocal switching
agreement with another Class I carrier.
A shipper or receiver with physical access to only one
Class I rail carrier (or its affiliated companies) may petition
the Board for a reciprocal switching agreement. As relevant
here, the petitioner must allege that the incumbent has failed
to provide service that meets one or more “performance
standards” enumerated in the Final Rule. The Rule contains
three performance standards, each intended to assess a differ-
ent “fundamental aspect[] of adequate rail service”: (1) relia-
bility in completing line-haul movements on time;

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No. 24-1811 7
(2) consistency in how long it takes to complete line-haul
movements; and (3) reliability in delivering and picking up
railcars at a shipper’s or receiver’s facility on schedule. 89 Fed.
Reg. 38646, 38648.
Under the Final Rule and its regulations, the Board “will
prescribe a reciprocal switching agreement” if the agency
finds that an incumbent rail carrier has failed to meet one or
more performance standards, the failure is not excused by one
of the Rule’s affirmative defenses, and a reciprocal switching
agreement is practicable. Id.; 49 C.F.R. § 1145.6(a), (b). The
Board will set the length of an initial prescription for between
three and five years, with the other terms of the agreement
then established by the affected rail carriers. See 89 Fed. Reg.
38646, 38648; 49 C.F.R. § 1145.6(c).
The Board’s prescription of a reciprocal switching agree-
ment does not wholly or automatically replace the incumbent
carrier. Rather, it simply requires the incumbent to offer a
switch to a competing Class I carrier, thereby enabling the
customer to choose between the two rail carriers for line-haul
service. See 89 Fed. Reg. 38646, 38655. The customer gains ac-
cess to an additional carrier while allowing the incumbent to
still compete for their business—thus incentivizing the in-
cumbent to improve its service to keep the line-haul move-
ment.
Finally, to provide the Board and customers with the in-
formation necessary to ascertain whether a carrier did not
meet one of the performance standards, the Final Rule re-
quires Class I carriers to collect and report data related to
those standards. See id. at 38674–76; 49 C.F.R. § 1145.8. Class I
carriers must submit this data to the Board on a weekly basis
as well as turn over individualized data related to a particular

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8 No. 24-1811
shipper’s or receiver’s traffic upon that customer’s request.
See 89 Fed. Reg. 38646, 38674–75; 49 C.F.R. § 1145.8(a), (b).
D
Two Class I carriers (CSX Transportation, Inc. and Union
Pacific Railroad Company) and two subsidiaries of another
Class I carrier (Grand Trunk Corporation and Illinois Central
Railroad Company) challenge the Final Rule. The Adminis-
trative Orders Review Act, commonly known as the Hobbs
Act, supplies our jurisdiction, governs our judicial review,
and provides that any “party aggrieved” by a “final order” of
the Board “may, within 60 days after its entry, file a petition
to review the order in the court of appeals wherein venue
lies.” 28 U.S.C. §§ 2321, 2342(5), 2344.
We have an independent obligation to assure ourselves
that jurisdiction is secure, and we have no doubt it is. The rail
carriers timely petitioned for our review of an appealable final
rule. And the Board has not objected to venue. Our attention,
then, is on the question of whether these carriers are “part[ies]
aggrieved” by the Final Rule. Id. § 2344.
The carriers challenging the Final Rule each participated
in the Board’s notice-and-comment process, which “estab-
lishes their party status.” Owner-Operator Indep. Drivers Ass’n
v. Fed. Motor Carrier Safety Admin., 656 F.3d 580, 585 (7th Cir.
2011). Further, these carriers are “aggrieved” because the Fi-
nal Rule subjects them to data collection requirements and,
when certain conditions are satisfied, directs the Board to im-
pose a reciprocal switching agreement upon them. The Hobbs
Act requires no more.
With our jurisdiction on solid ground, we can proceed to
the merits.

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No. 24-1811 9
II
The rail carriers’ challenges come on multiple fronts. But
their primary contention is that the Final Rule exceeds the
Surface Transportation Board’s statutory authority in the
Staggers Rail Act to prescribe reciprocal switching.
A
While the Hobbs Act specifies the “form of proceeding for
judicial review” of the Board’s rules, it is the Administrative
Procedure Act that “codifies the nature and attributes of judi-
cial review.” ICC v. Bhd. of Locomotive Eng’rs, 482 U.S. 270, 282
(1987). By its terms, the APA provides that a reviewing court
shall “hold unlawful and set aside agency action, findings,
and conclusions found to be … in excess of statutory jurisdic-
tion, authority, or limitations.” 5 U.S.C. § 706(2)(C).
As presented to us, the rail carriers do not challenge the
application of the Final Rule in any particular instance. In-
deed, as far as we are aware, the Board has not yet prescribed
a reciprocal switching agreement under the procedures
adopted in the Rule. The carriers instead seem to challenge
the Final Rule more on its face, inviting us to conclude that
the Board’s promulgation of the Rule itself exceeds the au-
thority Congress conferred in the Staggers Rail Act to order
reciprocal switching.
In Bondi v. VanDerStok, the Supreme Court recently de-
clined to decide what standard governs a pre-enforcement
challenge under the APA where, as here, a party contends
that an agency has exceeded its statutory authority. See 145
S. Ct. 857, 866 & n.2 (2025). The Court assumed, but did not
resolve, that the proper standard in such cases comes from
INS v. National Center for Immigrants’ Rights, Inc.: the

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10 No. 24-1811
challenger’s “burden is to show that the Rule itself is incon-
sistent with the statute on its face.” Id. at 865–66 (quoting Brief
for Petitioners at 27–28 (quoting INS v. Nat’l Ctr. for Immi-
grants’ Rights, Inc., 502 U.S. 183, 188 (1991))). The Supreme
Court articulated a similar framework in Reno v. Flores, 507
U.S. 292, 300–01 (1993). Where a party does not contest a rule’s
“application in a particular instance,” the Court explained
there, the challenger “must establish that no set of circum-
stances exists under which the [regulation] would be valid.”
Id. (alteration in original) (quoting United States v. Salerno, 481
U.S. 739, 745 (1987)).
Two Justices dissented in VanDerStok, each expressing
concern that applying a “no set of circumstances” test in pre-
enforcement challenges to agency rules may, at least in some
cases, render it too difficult to conclude that the agency ex-
ceeded its statutory authority. See 145 S. Ct. at 881–82
(Thomas, J., dissenting) (“If a regulatory definition survives
APA challenge so long as just one item it covers also happens
to be covered by the statute it purports to interpret, it is diffi-
cult to understand how an agency would ever promulgate an
invalid definition.”); id. at 892–94 (Alito, J., dissenting) (ex-
plaining that “[a]pplying the Salerno rule [on facial chal-
lenges] in a case in which a rule is challenged under that pro-
vision as exceeding the agency’s statutory authority may have
far-reaching consequences” and “would represent a huge
boon for the administrative state”).
We need not wade into this debate today. The parties do
not say a word on the point. So we focus, as the majority did
in VanDerStok, on whether the Final Rule itself is inconsistent
with the Staggers Rail Act. In the end, we conclude that it is.
The Board exceeded its statutory authority because the Final

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No. 24-1811 11
Rule, by its terms, deviates from the statutory standards Con-
gress established authorizing reciprocal switching. How we
arrive at this conclusion requires an extensive analysis of the
statutory scheme, to which we now turn.
B
The Surface Transportation Board is the successor to the
now-defunct Interstate Commerce Commission. In 1996 Con-
gress abolished the ICC and transferred its remaining func-
tions, including regulating rail carriers, to the Board. See ICC
Termination Act, Pub. L. No. 104-88, 109 Stat. 803; see also 49
U.S.C. § 10501.
Pursuant to what is now codified at 49 U.S.C. § 11102(a),
Congress had long authorized the ICC to order one rail carrier
to allow another carrier to use a limited section of its tracks—
what the statute calls “terminal facilities”—where that use
was “practicable and in the public interest.” But whether the
Commission also had the power to order reciprocal switching
remained unclear until 1980. See Midtec Paper Corp. v. United
States, 857 F.2d 1487, 1500 (D.C. Cir. 1988). It was then, in the
Staggers Rail Act, that Congress granted the ICC express stat-
utory authority to prescribe reciprocal switching agreements.
See Pub. L. No. 96-448, § 223, 94 Stat. 1895, 1929 (codified as
amended at 49 U.S.C. § 11102(c)). As relevant here, the enact-
ment provides that the agency—now the Board—“may re-
quire rail carriers to enter into reciprocal switching agree-
ments, where it finds such agreements to be practicable and
in the public interest.” 49 U.S.C. § 11102(c).
Whether the Final Rule exceeds the scope of the Board’s
authority in § 11102(c) thus requires us to construe what it
means to be “practicable and in the public interest.” We

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12 No. 24-1811
“interpret statutes without deference to the agency’s interpre-
tation, using the ‘traditional tools of statutory construction,’
exercising our ‘independent judgment in deciding whether an
agency has acted within its statutory authority’ while paying
‘[c]areful attention to the judgment of the Executive Branch,’
which ‘help[s] inform that inquiry.’” Gulomjonov v. Bondi, 131
F.4th 601, 609 (7th Cir. 2025) (alterations in original) (quoting
Loper Bright Enters. v. Raimondo, 603 U.S. 369, 401, 412–13
(2024)).
But in construing what is now § 11102(c), we do not paint
on a blank canvas. We interpreted the “in the public interest”
provision of the Staggers Rail Act in our 1985 decision in Cen-
tral States Enterprises, Inc. v. ICC, 780 F.2d 664.
In Central States we reviewed an ICC decision denying a
shipper’s petition to require a rail carrier to either share its
tracks (pursuant to § 11102(a)) or enter into a reciprocal
switching agreement (pursuant to § 11102(c)) with another
carrier. See id. at 667–68. “[T]o find a reciprocal switching
agreement to be in the public interest,” the Commission had
explained, the agency “would have to find that there was
some actual necessity or compelling reason for the agree-
ment.” Id. at 670. On the facts before it, however, the ICC con-
cluded that there was no actual necessity or compelling rea-
son for the agreement and, therefore, denied the shipper’s pe-
tition. See id. at 670–71.
On appeal the shipper insisted that the Commission had
applied the wrong standard to assess whether its request for
a switching agreement was “in the public interest.” See id. at
674, 677. So our decision focused on the proper construction
of what constitutes “in the public interest” within the mean-
ing of § 11102(c).

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No. 24-1811 13
“Both subsections (a) and (c) [of § 11102],” we explained,
“provide that the Commission ‘may’ order relief in the form
of a joint use or switching agreement where it is ‘practicable
and in the public interest.’” Id. at 668. And “[w]hen Congress
enacted” § 11102(c) in the Staggers Rail Act, we continued,
“the Conference adopted that portion of the Senate bill which
provided that the practicable and public interest standard to
be considered by the Commission ‘is [to be] the same stand-
ard the Commission has applied in considering whether to
order the joint use of terminal facilities [under § 11102(a)].’”
Id. at 677 (second alteration in original) (quoting H.R. Rep.
No. 96-1430, at 116–17 (1980) (Conf. Rep.)); see also S. Rep.
No. 96-470, at 42 (1979). So the “practicable and in the public
interest” standard, Central States concluded, draws its mean-
ing from the ICC precedent that preexisted the Staggers Rail
Act. See id. at 677–78 & n.18.
Our construction aligned with a longstanding principle of
statutory interpretation: where Congress “employs a term of
art” with “a long regulatory history,” it “brings the old soil
with it” and adopts that “prior agency practice.” George v.
McDonough, 596 U.S. 740, 746 (2022) (quoting Taggart v. Lo-
renzen, 587 U.S. 554, 560 (2019)). As applied here, Congress
employed in § 11102(c) a term of art—“practicable and in the
public interest”—from § 11102(a). Because this term had an
accepted meaning from pre-Staggers Rail Act administrative
proceedings, it follows that Congress “codified and adopted”
that meaning within § 11102(c). Id. at 746 (alterations omitted)
(quoting Cook v. Principi, 318 F.3d 1334, 1344 (Fed. Cir. 2002)
(en banc)); see also United States v. Bd. of Comm’rs of Sheffield,
435 U.S. 110, 134–35 (1978) (explaining that where “there had
been a longstanding administrative interpretation of a statute
when Congress re-enacted it” and “the legislative history of

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14 No. 24-1811
the re-enactment showed that Congress agreed with that in-
terpretation,” then “Congress is treated as having adopted
that interpretation”).
But there was more to Central States, and the more is im-
portant here. Relying on four ICC cases that predated the
Staggers Rail Act, Central States determined that a test of
“some actual necessity or compelling reason” is consistent
with the standard the Commission historically employed in
considering whether the joint use of terminal facilities was “in
the public interest” within the meaning of § 11102(a). 780 F.2d
at 677–78 (quoting Jamestown Chamber of Com. v. Jamestown,
Westfield & N.W. R.R., 195 I.C.C. 289, 292 (1933)) (first citing
Lehigh Valley R.R. Trackage Rights, 312 I.C.C. 389 (1961); then
citing Mfrs. Ass’n of York v. Penn. R.R., 73 I.C.C. 40 (1922); and
then citing Hastings Com. Club v. Chicago, Milwaukee & St. Paul
Ry., 107 I.C.C. 208 (1926)). In enacting § 11102(c), Central States
explained, “Congress stated that in assessing the need for a
proposed switching agreement, the Commission is to apply
the ‘same standard [it] … has applied in considering whether
to order the joint use of terminal facilities.’” Id. at 680 (altera-
tion in original) (quoting H.R. Rep. No. 96-1430, at 116–17
(1980) (Conf. Rep.)). In the final analysis, then, we had little
difficulty concluding that the “legislative[ly] mandated”
standard to determine whether a reciprocal switching agree-
ment is “in the public interest” within the meaning of
§ 11102(c) is likewise that there must be “some actual neces-
sity or compelling reason” for it. Id.
The D.C. Circuit charted a similar course of reasoning a
few years later in Midtec Paper Corp. v. United States, 857 F.2d
1487 (1988). Although the court confronted a set of regula-
tions not before us in Central States, it concluded—in light of

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No. 24-1811 15
the Staggers Rail Act’s Conference Report—that “the Com-
mission’s discretion should be exercised and constrained in
like manner under both [§ 11102(a) and (c)].” Id. at 1502. And
“[h]istorically,” the D.C. Circuit observed, “the Commission
has required a party requesting terminal trackage rights [pur-
suant to § 11102(a)] to satisfy the ‘practicable and in the public
interest’ criteria … by demonstrating ‘some actual necessity
or compelling reason’ why such an arrangement should be
ordered.” Id. at 1492 (quoting Jamestown, 195 I.C.C. at 291).
C
Our next step, then, is to give content to the “actual neces-
sity or some compelling reason” standard. And it is at this
precise point that the ICC precedent we relied upon in Central
States becomes important.
In each of the four cases relied on in Central States, the ICC
had determined that the “public interest” did not necessitate
shared use of terminal facilities because the shipper failed to
demonstrate the incumbent carrier’s rail service was inade-
quate. See Jamestown, 195 I.C.C. at 292 (“The record shows that
the [incumbent]’s freight service at Jamestown is not only ad-
equate but is exceptionally good so far as shipments over its
lines are concerned. The desirability, but not the necessity, of
the additional operation of a joint terminal freight station is
shown, but the record does not show that Jamestown shippers
are so inadequately served at the present time as to warrant
us, from the standpoint of the public interest, to require the
[incumbent] to inaugurate additional terminal facilities and
share them with [another rail carrier].”); Lehigh Valley R.R.,
312 I.C.C. at 392 (“A number of railroads, in combination, can
now provide second-morning service between the desired
points, and no evidence of inadequate service to the shipping

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16 No. 24-1811
public by such railroads has been shown. … In such a situa-
tion, we cannot find that the public interest requires addi-
tional competition in an already adequately served terri-
tory.”); Mfrs. Ass’n of York, 73 I.C.C. at 50 (“There is no show-
ing that the shippers are so inadequately served at present
that we are warranted, from the standpoint of the public in-
terest, in depriving the carrier first on the ground of an im-
portant volume of the traffic originating along its line, by the
direct and affirmative exercise of the power to require the [in-
cumbent rail carrier] to share its terminal facilities with [an-
other carrier.]”); Hastings Com. Club, 107 I.C.C. at 217 (“A
switch engine is constantly available for the Hastings ship-
pers. Only 14 shippers either ship or receive carload freight,
and under normal conditions the record indicates that the [in-
cumbent] affords them a reasonably adequate service.”).
In other pre-Staggers Rail Act cases, the Commission sim-
ilarly declined to prescribe joint use of terminal facilities with-
out a finding that the existing service was inadequate. See,
e.g., Muskegon Ry. & Navigation v. Pere Marquette Ry., 148 I.C.C.
653, 661 (1928) (explaining that a carrier is “entitled to serve
the industries” located on its own tracks and it is “not in the
public interest to require joint use of such tracks” unless the
service “is not adequate or impartial”); City of Hialeah v. Fla.
E. Coast Ry., 317 I.C.C. 34, 37 (1962) (finding that the public
interest did not require joint use of terminal facilities where
“[t]here has been no allegation, nor do we believe that a basis
exists for an allegation, that shippers are now inadequately
served as a result of the method of operation by the [incum-
bent carrier]”); cf. Spokane, Portland & Seattle Ry., 348 I.C.C.
109, 139–41 & n.20 (1975) (rejecting the “actual necessity or
compelling reason” standard based on an overruled ICC de-
cision but then concluding that the evidence “clearly

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No. 24-1811 17
show[ed] a compelling reason” for terminal access because
the “current service” was “clearly inadequate” (citing Has-
tings Com. Club v. Chicago, Milwaukee & St. Paul Ry., 69 I.C.C.
489, 493 (1922), rev’d, 107 I.C.C. 208 (1926))).
Central States made the same point by referencing the Stag-
gers Rail Act’s legislative history. By enacting § 11102(c), we
explained, Congress “provide[d] ‘an avenue of relief for ship-
pers where only one railroad provides service and it[] [i]s inade-
quate.’” Cent. States, 780 F.2d at 669 (emphasis added) (quot-
ing H.R. Rep. No. 96-1430, at 116 (1980) (Conf. Rep.)).
After Congress enacted § 11102(c), the ICC adhered to
much the same construction by similarly requiring a showing
of inadequate service to prescribe reciprocal switching. See,
e.g., Cent. States Enters., Inc. v. Seaboard Coast Line R.R.,
No. 38891, 1984 ICC LEXIS 499, at *5 (May 11, 1984) (reversing
grant of reciprocal switching agreement where “[the incum-
bent carrier’s] service has not been shown to be inadequate,
nor have its rates been shown to be unreasonable”), aff’d sub
nom. Cent. States Enters., Inc. v. ICC, 780 F.2d 664 (7th Cir.
1985); Midtec Paper Corp. v. Chicago & N.W. Transp. Co., 1
I.C.C.2d 362, 364 (1985) (“[A]n affirmative finding that joint
terminal use is in the public interest requires a showing of
‘some actual necessity or compelling reason.’ … A corollary
of this requirement is that it must be shown that existing ser-
vice is inadequate.” (quoting Jamestown, 195 I.C.C. at 291–92)
(citing Hastings Com. Club, 107 I.C.C. at 216)). Indeed, the
Commission’s own brief in Central States described “inade-
quacy of service” as a necessary “prerequisite for a[n] award
of either joint terminal use or reciprocal switching.” Joint Brief
for the Interstate Commerce Commission and United States
of America at 37 n.31, Cent. States Enters., 780 F.2d 664 (No. 84-

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18 No. 24-1811
2005). “[T]he shipper[],” the ICC urged in our court, bears the
“burden of demonstrating some compelling need, such as a
clear inadequacy of service, before the Commission will re-
quire a carrier to turn its operating property or traffic origi-
nating on its line over to another carrier.” Id. at 38 (citing Mfrs.
Ass’n of York, 73 I.C.C. at 49–50).
Another point of our statutory analysis warrants empha-
sis. At times, the Final Rule and the parties before us describe
the “some actual necessity or compelling reason” standard as
a “compelling need” test. Our opinion in Central States used
this same shorthand. See 780 F.2d at 678 & n.18. For the avoid-
ance of any doubt, the precise standard Central States inter-
preted § 11102(c) to require was put in the disjunctive—re-
quiring “some actual necessity or compelling reason” for a re-
ciprocal switching agreement. Id. at 680. But nowhere does
Central States state, much less suggest, that these two formu-
lations have independent and different meanings, with one
setting a higher standard than the other. Nor do we see any
point in looking for daylight between them. Quite to the con-
trary, we have drawn upon Central States’s interpretation of
§ 11102(c) and concluded that the statutory provision requires
a threshold finding of inadequate service by the incumbent
rail carrier.
D
The Board urges a different statutory analysis, joined by
several associations of freight rail shippers who intervened to
defend the Final Rule.
The Board contends that in evaluating whether to pre-
scribe reciprocal switching, § 11102(c)’s “in the public inter-
est” requirement, requires not a threshold finding of

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No. 24-1811 19
inadequate service by an incumbent carrier, but instead a bal-
ancing of the respective interests of the affected carriers, ship-
pers, and public at large.
We cannot get there, for the Board offers an incomplete
account of what § 11102(c) demands. In particular, the Board
is mistaken in asking us to interpret the statutory language
without regard to the “actual necessity or some compelling
reason” test, which we concluded in Central States is the “leg-
islative[ly] mandated” standard that emerged from the ICC’s
pre-1980 administrative precedent. 780 F.2d at 680. The Board
also inadequately accounts for the role that a finding of inad-
equate rail service played in those ICC adjudications—a nec-
essary “prerequisite,” as the Commission represented to us in
Central States. Joint Brief for the Interstate Commerce Com-
mission and United States of America, supra, at 37 n.31.
Taking a different tact, the Board contends that the ICC’s
administrative case law used the phrase “actual necessity or
some compelling reason” merely to inform what would be re-
quired, in some circumstances, to strike a fair balance of inter-
ests. But § 11102(c), the Board insists, does not require a
threshold showing of any current service problems to be “in
the public interest” within the meaning of that statute.
To be sure, the Board’s position does find some support in
ICC precedent. In several cases relied on by the intervening
shippers associations, the Commission balanced whether the
benefits of regulatory intervention outweighed the detri-
ments and, from there, ordered reciprocal switching or joint
use without describing any discrete problems with the exist-
ing rail service. See, e.g., Port Arthur Chamber of Com. v. Texar-
kana & Fort Smith Ry., 136 I.C.C. 597 (1928); Chicago & N.W. Ry.
v. Ann Arbor R.R., 263 I.C.C. 287 (1945); Del. & Hudson Ry. v.

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20 No. 24-1811
Consol. Ry., 367 I.C.C. 718, 730–31 (1983) (Sterrett, Vice Chair-
man, dissenting) (“In considering whether the [petitioner’s]
proposal is in the public interest, neither the Commission nor
the review board found that [the incumbent’s] present service
in Philadelphia is inadequate.”).
But these precedents are both limited and overwhelmed
by others. Put another way, it is hardly surprising that, on a
handful of occasions throughout the decades, the Commis-
sion—as a multi-member body with varying policy prefer-
ences—reached results not entirely aligned with one another.
Having taken a hard look at the totality of the history, we con-
clude that the weight of the ICC’s administrative precedent—
and particularly the pre-Staggers Rail Act precedent that Con-
gress codified within § 11102(c)—points in one direction: a
finding of inadequate service functioned as a prerequisite to
regulatory intervention. So a construction of the statute that
merely considers, as one aspect of a balancing test, whether
the existing rail service is inadequate, but does not require
such a finding, rests on legal infirmity.
III
A
What all this history tells us is that the statute authorizing
the Surface Transportation Board to order reciprocal switch-
ing, 49 U.S.C. § 11102(c), requires “some actual necessity or
compelling reason” to do so. And we interpret this standard,
as we have emphasized, to demand evidence that the service
provided by the incumbent carrier is inadequate. Stated more
directly, the inadequacy of the existing service is a necessary
finding the Board must make before it can impose a reciprocal
switching agreement.

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No. 24-1811 21
Having determined what § 11102(c) requires, we can now
examine whether the Final Rule exceeds the Board’s statutory
authority. If the Rule permits the Board to impose a reciprocal
switching agreement in the absence of a finding of inadequate
service by an incumbent carrier, then the answer to that ques-
tion is yes.
B
We begin by observing that the Final Rule explicitly rejects
the “some actual necessity or compelling reason” standard.
See 89 Fed. Reg. 38646, 38648–52. This test, the Board tells us,
“rest[s] on a misinterpretation of the public interest standard
in section 11102(c).” Id. at 38649; see also id. at 38681 n.56
(“[The] carriers have misstated the law in suggesting that the
Board must find a compelling need as a condition to a pre-
scription under section 11102(c).”). We cannot agree. Indeed,
it is the Board that has misinterpreted § 11102(c) and our con-
struction of that provision in Central States.
For more than 80 years it has been a foundational principle
of administrative law that agency action “may not stand if the
agency has misconceived the law.” SEC v. Chenery Corp., 318
U.S. 80, 94 (1943) (“[I]f the action is based upon a determina-
tion of law as to which the reviewing authority of the courts
does come into play, an order may not stand if the agency has
misconceived the law.”); see also NLRB v. Brown, 380 U.S. 278,
292 (1965) (“Courts must, of course, set aside [agency] deci-
sions which rest on an ‘erroneous legal foundation.’” (quoting
NLRB v. Babcock & Wilcox Co., 351 U.S. 105, 112–13 (1956))).
We stop short of vacating the Final Rule on this basis
alone, however, for the Board presses an argument in the al-
ternative. “[E]ven if a compelling need were required under

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22 No. 24-1811
the public interest standard in section 11102(c),” the Board
urges, the Final Rule “would meet that standard” because it
“promotes adequate rail service both by introducing an alter-
nate rail carrier via an appropriately defined and scoped re-
ciprocal switching agreement when there have been sufficient
indications of service issues … and by more broadly creating an
incentive for rail carriers to provide adequate service.” 89 Fed.
Reg. 38646, 38652 (emphasis added).
In advancing this argument, the Board necessarily recog-
nizes that the adequacy of an incumbent’s service is at least
relevant to determining whether a reciprocal switching agree-
ment is “in the public interest” within the meaning of
§ 11102(c). See id.; see also id. at 38648 (“There is a clear public
interest in adequate rail service—a matter of fundamental
concern under the Interstate Commerce Act.”). And undoubt-
edly the purpose of the Final Rule is to “promote the provi-
sion of adequate rail service.” Id. at 38648. Its very title—Re-
ciprocal Switching for Inadequate Service—confirms as
much.
But how does the Final Rule promote adequate rail ser-
vice? The Board suggests the Rule’s three performance stand-
ards serve as the triggering mechanism to determine whether
service is inadequate and, in turn, that prescription of a recip-
rocal switching agreement furthers the public interest. These
performance standards, the Final Rule states, “address three
fundamental aspects of adequate rail service: reliable timing
in the arrival of line-haul shipments, consistent shipment
times, and on-time local pick-ups and deliveries.” Id. “The
standards,” the Board adds, “are set at levels such that perfor-
mance below the standards would not meet many shippers’
(and carriers’) service expectations.” Id. And “as a condition

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No. 24-1811 23
to regulatory intervention,” the Final Rule continues, “there
must be sufficient indications, in the form of the incumbent
carrier’s failure to meet a service-based performance standard
and the absence of an affirmative defense or demonstration of
undue impairment, that the introduction of an alternate rail
carrier via a[] … switching agreement prescription could be
valuable in bringing about better rail service.” Id. at 38650.
But here is where the Final Rule departs from what
§ 11102(c) requires. “[T]he performance standards,” the Rule
states, “do not define what constitutes adequate rail service.”
Id. at 38647. The Board then doubles down on this statement
in its brief, telling us that, in devising the performance stand-
ards “the Board declined to predict what would constitute ‘in-
adequate rail service’ in any given circumstance.” And it is
“incorrect,” the agency continues, “to suggest that failure to
meet a performance standard in [the Final Rule] represents a
regulatory determination of inadequate service.”
On this point, the Final Rule is at odds with itself. The
whole objective of the Board’s regulatory action, dating back
to its April 2022 hearing, was to improve rail service that the
agency deemed inadequate. Nevertheless, the Board now
concedes that the Final Rule’s three performance metrics—
around which the entire scheme authorizing the prescription
of a switching agreement is built—do not correspond with a
finding that an incumbent rail carrier’s service is inadequate.
And we must take the Board at its word. See Apogee Coal Co.
v. Off. of Workers’ Comp. Programs, 113 F.4th 751, 759 (7th Cir.
2024) (“[A]gency action must be judged on the reasoning
given by the agency at the time of its decision.” (citing Chenery
Corp., 318 U.S. at 87–88)).

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24 No. 24-1811
For the Board’s position to make any sense, the perfor-
mance standards, necessarily, must measure something less
than the adequacy of an incumbent’s existing rail service,
thereby creating daylight between the level of service that
causes a carrier to fail one of the performance standards and
the separate, more critical and statutorily required determina-
tion that the level of service it provides is inadequate. But the
Final Rule never captures—and never hinges prescription of
a reciprocal switching agreement on—the full measure and
finding of inadequate service.
During the notice-and-comment period, one rail carrier ar-
gued that, “because there is no compelling need for a switch-
ing prescription where a service inadequacy no longer exists,”
the Board “should only permit petitions for alleged service
inadequacies that are ‘reasonably contemporaneous with the
petition and exist at the time of the petition.’” 89 Fed. Reg.
38646, 38681 n.56 (citation omitted). But the Board rejected
this proposal. It would “undermine the purposes of [the Final
Rule],” the agency explained, “to require demonstration of an
ongoing service issue.” Id. So the Final Rule “does not require
demonstration of an ongoing service issue as a condition to a
prescription.” Id. Indeed, a carrier can be subject to a recipro-
cal switching agreement even after curing the deficiency that
led the shipper to file the petition in the first place. See id. at
38686.
What this means is that the Final Rule, by its very terms
and the Board’s own admission, does not require a showing
of inadequate service by an incumbent carrier before it au-
thorizes reciprocal switching. Because we have interpreted
the statutory standard of “in the public interest” in § 11102(c)

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No. 24-1811 25
of the Staggers Rail Act to require such a finding, the Board’s
concession all but defeats its position before us.
C
At the risk of repetition, the Final Rule expressly states
that “the performance standards do not define what consti-
tutes adequate rail service.” Id. at 38647. But perhaps the Final
Rule could be saved if another component of its regulatory
framework ensures that the Board will not impose reciprocal
switching absent a finding of inadequate service.
Recall that, under the framework established by the Final
Rule, the Board “will prescribe a reciprocal switching agree-
ment” where the incumbent rail carrier fails to meet one or
more performance standards, the failure is not excused by one
of the Rule’s affirmative defenses, and a reciprocal switching
agreement is practicable. Id. at 38709; 49 C.F.R. § 1145.6(a), (b).
With the Board representing that the performance standards
do not define what constitutes adequate rail service, this
leaves the affirmative defenses and practicability require-
ment. Yet nothing in the text of the Final Rule suggests that
either criterion evaluates the adequacy of the existing service.
Begin with the affirmative defenses. The Final Rule pro-
vides that an incumbent rail carrier “shall be deemed not to
fail a performance standard if the carrier demonstrates that its
apparent failure to meet a performance standard was caused
by conditions that would qualify as an affirmative defense.”
89 Fed. Reg. 38646, 38685; see also 49 C.F.R. § 1145.3. The af-
firmative defenses thus do not measure a rail carrier’s service
but rather are designed to—as the very words affirmative de-
fense suggest—provide the incumbent with an opportunity to
explain there is some cause other than its own service that

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26 No. 24-1811
excuses a shortcoming in performance. See 89 Fed. Reg. 38646,
38685 (“As a general matter, the Board’s specified affirmative
defenses are focused on reasons that a carrier’s service might
be below a metric during the relevant 12-week period.”). Even
more specifically, the regulations accompanying the Final
Rule enumerate five defenses, which contemplate circum-
stances such as natural disasters, third-party conduct, and
substantial increases in the shipper’s traffic. See 49 C.F.R.
§ 1145.3. But none of them allow the incumbent to present ev-
idence that they provide adequate service to the petitioning
shipper or receiver. See id.
True enough, the Board has said it will consider additional
affirmative defenses “on a case-by-case basis.” Id. But we fail
to see how an incumbent carrier could use this provision to
avoid a reciprocal switching agreement on the ground that
their existing rail service is adequate. During notice and com-
ment, one carrier proposed language that would require the
Board to consider “any defense relevant to whether there is a
service inadequacy for which there is actual necessity or com-
pelling reason for a prescribed switching agreement.” 89 Fed.
Reg. 38646, 38685 (citation omitted). Yet the Board rejected
this proposal too, concluding that there is “less value” in af-
firmative defenses that “focus on whether there is a service
inadequacy with certain largely undefined effects based on
allegations of a petitioner’s particularized service needs or
whether the carrier cured the cause of its failure to meet a per-
formance standard.” Id. at 38686. We therefore have no basis
to conclude that an incumbent carrier can avoid a reciprocal
switching agreement by establishing as a defense that they
provide adequate service to the petitioning shipper or re-
ceiver.

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No. 24-1811 27
The practicability constraint fares no better. The regula-
tions accompanying the Final Rule provide that “the Board
will not prescribe a reciprocal switching agreement if the in-
cumbent rail carrier or alternate rail carrier demonstrates that
the agreement is not practicable.” 49 C.F.R. § 1145.6(b). Prac-
ticability is then defined in terms that speak solely to the op-
erational feasibility of transferring shipments between the in-
cumbent and an alternate carrier. See id.
No one suggests that measuring whether reciprocal
switching is “practicable” requires an assessment of the ade-
quacy of an incumbent rail carrier’s service. For good reason.
Remember that § 11102(c) requires a switching agreement to
be both “practicable and in the public interest.” 49 U.S.C.
§ 11102(c)(1) (emphasis added); see also Cent. States, 780 F.2d
at 676 (explaining that, pursuant to § 11102, the petitioner
“must demonstrate that the requested reciprocal switching
agreement is both ‘practicable’ and in the ‘public interest’”).
So in resolving whether the Board has satisfied the “public
interest” requirement of the statute, it is of little consequence
that the Final Rule separately ensures any prescribed agree-
ment will be “practicable.”
With all of this recognized, the answer to the question be-
fore us becomes yet more certain: nothing in the Final Rule
assures us that the Board will only impose a reciprocal switch-
ing agreement in circumstances where the incumbent’s rail
service is inadequate. Indeed, the Final Rule’s text confirms
that inadequate service is not a prerequisite to prescription,
and the Board has reinforced the shortcoming by declining to
adopt an affirmative defense relating to the adequacy of ex-
isting rail service.

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28 No. 24-1811
Stepping back, consideration of the Final Rule has no
doubt immersed us in a complicated regulatory and statutory
scheme. And that scheme is informed by an equally compli-
cated history of ICC administrative adjudications. But do not
let that two-fold complexity overwhelm. We have determined
that the statute authorizing the Board to prescribe reciprocal
switching requires a finding of inadequate service, and this
necessary finding is unambiguously missing from the Final
Rule. That outcome reflects legal infirmity.
Because the process the Final Rule provides to obtain a re-
ciprocal switching agreement does not include a determina-
tion of whether an incumbent carrier’s rail service is inade-
quate, we conclude that the Final Rule, by its terms, is incon-
sistent with the Board’s statutory authority under § 11102(c).
D
The Board urges us to overlook this defect in the Final
Rule’s procedures, assuring us that any decision to order re-
ciprocal switching will be made on a case-by-case basis. A rail
carrier flunking a performance standard, the agency presses,
does not automatically result in a prescription—it merely ini-
tiates an involved process in which the Board can and will
consider and balance all relevant factors.
But the Final Rule specifically forecloses the individual-
ized determination that the agency claims it enshrines. No-
where does the Final Rule contemplate the Board weighing
the interests of the parties, taking testimony on the adequacy
of the existing rail service, evaluating whether the introduc-
tion of a competing carrier could be beneficial, and, from
there, exercising its discretion to either prescribe reciprocal
switching or refrain from doing so. To the contrary, the

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No. 24-1811 29
agency “will prescribe a reciprocal switching agreement”
where the incumbent rail carrier fails to meet one or more per-
formance standards, that failure is not excused by one of the
Rule’s affirmative defenses, and a reciprocal switching agree-
ment is practicable. 89 Fed. Reg. 38646, 38648 (emphasis
added); 49 C.F.R. § 1145.6(a), (b) (emphasis added). Further,
on the critical question before the Board—the adequacy of ex-
isting service—the Final Rule announces that the agency does
not require an ongoing service issue as a condition to pre-
scription and, moreover, has rejected a corresponding affirm-
ative defense. Any latitude the Board retains for a case-by-
case inquiry in connection with other considerations cannot
overcome this legal deficiency.
In the end, we are left with no choice but to vacate the Fi-
nal Rule.
IV
Our decision that the Final Rule exceeds the Board’s stat-
utory authority to prescribe reciprocal switching under
§ 11102(c) obviates the need to consider the rail carrier’s chal-
lenges to other aspects of the Rule. Yet we still owe them a
brief word.
The carriers contend that the Final Rule’s three perfor-
mance standards are arbitrary, capricious, and unsupported
by the record. But this dispute pulls us into complex detail
regarding the Board’s selection of each of the three metrics.
And any conclusion we reach might be advisory, as the Board
may reevaluate these standards in light of our decision and
the arguments made on appeal, should it decide to re-prom-
ulgate the Rule on remand.

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30 No. 24-1811
That leaves us with the challenge to the Final Rule’s re-
quirement that Class I carriers collect and report certain per-
formance data. The carriers urge that this aspect of the Rule
exceeds the Board’s ancillary powers conferred in its enabling
statute, 49 U.S.C. § 1321. Resolving this question is compli-
cated by the Board’s failure in the Final Rule to rely expressly
on its statutory authority under § 1321(b)(3), which grants the
Board authority to “obtain from those carriers and persons in-
formation the Board decides is necessary to carry out [49
U.S.C.] subtitle IV”—the subtitle that includes its power to
prescribe reciprocal switching. Further, the rail carriers made
sound points on appeal regarding the need for a non-disclo-
sure agreement or protective order in connection with confi-
dential information—points that the Board did not disagree
with. The Board may well revisit this component of the Final
Rule too on remand. But we refrain from deciding today
whether the disclosure requirements, as written, exceed the
agency’s statutory authority.
* * *
For these reasons, we GRANT the petition, VACATE the
Final Rule, and REMAND to the Board for further proceed-
ings.

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