[00:00:00] Speaker 00: Case number 18-5145 at out, American Great Lakes Portsmouth Association at out of bounds versus Carl L. Schultz in his official capacities as commanded, United States Coast Guard at out, Mr. Bennett for the bounce, Ms. [00:00:18] Speaker 00: Lyons for the Federal Abolies, and Mr. Longstrent for the intervener Abolies. [00:00:31] Speaker 05: Good morning. [00:00:32] Speaker 01: Good morning, Your Honors, and may it please the Court. [00:00:36] Speaker 01: I'm Jonathan Benner, appearing for appellants who are Great Lakes situated maritime businesses, ports, and vessel operators, all of whom are impacted by pilotage costs imposed by the United States Coast Guard. [00:00:52] Speaker 01: This is part of an annual rate-making exercise mandated by the Great Lakes Pilotage Act. [00:01:00] Speaker 01: This mandate directs the Coast Guard. [00:01:04] Speaker 01: While it's not particularly detailed in its instruction, it does say that the Coast Guard shall set these rates in consideration of the public interest and the cost of providing the service. [00:01:15] Speaker 01: As you've no doubt divined from the papers before you, this cause arises against a backdrop of a multi-year effort by [00:01:26] Speaker 01: rate payers and other affected entities to really going back to the 2015 navigation season to try to grasp hold of this annual rate making process and to impose some what they regard as fairness and regularity to the process by which the Coast Guard takes data and transforms this through a fairly elaborate [00:01:54] Speaker 01: formula into hourly rates that are paid by these rate payers. [00:02:00] Speaker 01: We brought to this court three elements of the district court's disposition. [00:02:06] Speaker 01: Of the matter, two of these are challenges, APA challenges to the [00:02:14] Speaker 01: Coast Guard's determination about staffing levels. [00:02:17] Speaker 01: Staffing levels drive costs very heavily in the Coast Guard's formulation. [00:02:23] Speaker 01: This has been referred to in the papers as the peak staffing model that the Coast Guard imposed. [00:02:32] Speaker 01: issues related to retention, attrition, recruitment, which also form the basis of the Coast Guard's determination of staffing levels. [00:02:44] Speaker 01: These two issues are somewhat related. [00:02:47] Speaker 01: They feed on each other. [00:02:49] Speaker 01: We also bring before the Court an inadequacy of remedy issue that was raised by the District Court's disposition of the waiting factor error that the District Court found. [00:03:02] Speaker 01: a fairly glaring, obvious, avoidable deficiency both in the proposed rule that the Coast Guard put out and in its final rule in which the Coast Guard simply neglected, despite fairly luciferous, we believe, finger pointing by us to the problem, an element of the rate calculation which resulted in [00:03:30] Speaker 01: an arithmetic problem with the final rule. [00:03:35] Speaker 01: The arithmetic problem was that because the invoicing to the rate payers includes a multiplier that's based on the size of the vessel, and that multiplier ranges anywhere from 1.0 up to 1.0. [00:03:54] Speaker 06: If you could say we were to agree with you as to that question, what remedy is available to us? [00:04:06] Speaker 06: That's a question that I have been thinking through. [00:04:09] Speaker 06: If we were to vacate the 2016 rate, as you would prefer, [00:04:15] Speaker 06: What is left for the agency to do? [00:04:18] Speaker 06: I mean, how do they impose a new rate without running afoul of retroactive, the prohibition on retroactive rate making in Bowen and other cases? [00:04:28] Speaker 01: Judge Rao, I think you're at the heart of probably what the discussion is going to be today. [00:04:34] Speaker 01: What is the remedy for this? [00:04:37] Speaker 01: We have proposed various remedies as this has progressed because [00:04:44] Speaker 01: Over the course of getting this issue litigated, the backdrop has changed. [00:04:50] Speaker 01: I think the starting point for us on remedy is that the 2016 rates, which were established by the final rule that we contest, are no longer in effect. [00:05:02] Speaker 01: By the time the district court issued its first merits opinion on that, we had a proposed rule for the 2017 rates. [00:05:14] Speaker 01: By the time it issued its remedy order, the 2017 rates were in effect and the 2018 rates had been proposed. [00:05:23] Speaker 01: Right now we're operating under 2019 rates. [00:05:27] Speaker 01: So to come back directly to your question, what we have proposed is simply that given the effect of the weighting factor, which was essentially to confiscate money, [00:05:43] Speaker 01: from the rate payers and direct it to be transferred to the pilotage monopolies that the Coast Guard supervises, that at a minimum there should be clear direction to the agency to credit that [00:06:02] Speaker 01: those accesses back. [00:06:04] Speaker 01: The agency itself has said that the calendar year 2060 averages $5 million. [00:06:10] Speaker 06: How does it credit those amounts back without effectively calculating what the rate should have been? [00:06:19] Speaker 06: I mean, isn't that what they would have to do in order to determine the amount of what would need to be credited? [00:06:24] Speaker 01: Yeah, I understand the question, Your Honor. [00:06:28] Speaker 01: It's an adjustment to the billing. [00:06:32] Speaker 01: It's not a re-imposition of a new rate for 2016. [00:06:36] Speaker 01: The 2016 rates are dead. [00:06:39] Speaker 01: These are building errors that the Coast Guard essentially ordered. [00:06:44] Speaker 01: And whether it's a refund or a credit, we say it can be either. [00:06:47] Speaker 01: The ratepayers, it's very easy to back out of the invoices. [00:06:53] Speaker 01: The invoices reflect a multiplication of [00:06:55] Speaker 01: on average 1.28 times the hourly billing rate. [00:06:59] Speaker 01: You divide out whatever the waiting factor error was and you revise those invoices. [00:07:07] Speaker 01: If it's done by credit to rate payers or it's done by refund is not particularly important to us. [00:07:15] Speaker 01: But if nothing is done, if nothing is done, then we have a situation where we estimate in the neighborhood of 12 to 13 million dollars [00:07:25] Speaker 01: was extracted from the rate payers directed to the pilots for no services rendered and on no cost basis. [00:07:35] Speaker 01: No costs were incurred by the pilots to gain that money. [00:07:38] Speaker 01: It was a windfall. [00:07:39] Speaker 02: How does the credit work? [00:07:41] Speaker 01: The credit would simply work with invoices for the 2016 period. [00:07:47] Speaker 01: And by the way, that period was attenuated. [00:07:51] Speaker 01: It ran all the way into the [00:07:55] Speaker 01: fall of 2017 at any invoices during the time when the 2016 rate was in effect. [00:08:02] Speaker 01: should be revised to make that arithmetic correction to correct the windfall. [00:08:09] Speaker 01: The money's gone from my client. [00:08:13] Speaker 01: And we're saying that this is a statute that requires rate making based on cost. [00:08:18] Speaker 01: There's no underlying cost for that. [00:08:20] Speaker 01: No service was provided. [00:08:22] Speaker 02: But I guess when I'm asking about how does a credit work is how mechanically is there a shift of money that gives you what I assume you're looking for? [00:08:32] Speaker 01: Yes, I mean, either if it's a refund, there'd be a direct payment back. [00:08:38] Speaker 01: If it's credited, because the ratepayers here tend to be repetitive ratepayers. [00:08:44] Speaker 01: If it's a credit, they would have a credit going forward in future cycles, yes. [00:08:52] Speaker 06: Mandated by the agency. [00:08:54] Speaker 01: Yes. [00:08:56] Speaker 01: I'd be perfectly happy for the pilots to do this because they're good citizens, but I don't think at this stage we're going to see that happen. [00:09:03] Speaker 06: And that doesn't pose a retroactivity problem? [00:09:06] Speaker 01: I don't think it does. [00:09:08] Speaker 01: I think the prohibition against retroactive rate-making does not apply in a situation where [00:09:18] Speaker 01: there's an effort to correct an obvious arithmetic error. [00:09:23] Speaker 01: We're not saying that the 2016 rates now have to be reestablished and reapplied. [00:09:29] Speaker 01: We're saying that the Coast Guard enabled a windfall that it should not have and that we know exactly what it is. [00:09:39] Speaker 01: We can calculate it pretty accurately. [00:09:42] Speaker 01: And there should not be a system, Congress probably didn't contemplate a system, [00:09:47] Speaker 01: where this kind of government error goes un-remedied. [00:09:52] Speaker 01: And I don't understand. [00:09:55] Speaker 02: I must be missing something, because if you're not contemplating a reestablishment of rates for 2016, then what happens after a vacator? [00:10:05] Speaker 02: Because what you're asking for, the district court gave remand without a vacator. [00:10:10] Speaker 02: That's right. [00:10:10] Speaker 02: You're saying there should have been a vacator. [00:10:12] Speaker 01: We are. [00:10:12] Speaker 02: But the way you want the vacator to work out is through a credit. [00:10:17] Speaker 02: But because then if there's a credit, then going forward at least, you feel like you'll be made whole for amounts that we were deprived of with respect to 2016. [00:10:27] Speaker 02: But if there's a vacator of the 2016 rates, then there's nothing in place for 2016. [00:10:33] Speaker 01: But there needn't be anything in place for 2016 at this point when we're operating under 2019 rates at this time. [00:10:43] Speaker 01: This is simply a look back and correction. [00:10:47] Speaker 01: The Coast Guard has in its own regulations, we've cited in our papers, the ability to order corrections of invoices. [00:10:57] Speaker 02: Can they do that without a vacator? [00:11:01] Speaker 01: possibly they could. [00:11:02] Speaker 01: I'm just not understanding where the vacators fit into this, because if it's going forward... Judge Sreenivasan, our argument about vacator is that it is the sort of default or presumptive response to a finding of an unlawful rule. [00:11:23] Speaker 01: Here we have a rule that had several moving parts. [00:11:27] Speaker 01: We did not ask for [00:11:31] Speaker 01: review by this tribunal of the other element of the rule that the district court found on the law floor. [00:11:38] Speaker 01: But we believe that the district court overanalyzed or over relied on the disruption prong [00:11:50] Speaker 01: of allied signal to decide not to vacate. [00:11:53] Speaker 01: I suppose that if the remand order is clear enough, and I think the district court thought it was, that the Coast Guard was going to do something about this and that there would be a remedy, the remedy would occur whether there was a vacator or not. [00:12:10] Speaker 01: We still believe that vacator was appropriate and we don't believe it has the disruptive effects that the district court feared. [00:12:17] Speaker 01: This is what we're arguing on vacator. [00:12:18] Speaker 01: Or we believe that [00:12:20] Speaker 01: the district court had the authority, as allied signals said, to cut out that which was excessive in the disposition of, in its disposition of our APA challenges and address those directly without moving the whole rule into as a novelty. [00:12:43] Speaker 01: I'm not sure though that it [00:12:45] Speaker 01: it makes any difference whatsoever other than in the abstract as to whether the two, given the [00:12:53] Speaker 01: applicability of the 2019 rates now, whether the 2016 rates are in place or not. [00:12:59] Speaker 01: That would be our feeling of it. [00:13:01] Speaker 06: As a practical matter, since the rate making occurs annually, right? [00:13:05] Speaker 01: Yes. [00:13:05] Speaker 06: You know, each new rate is put in place, and that rate would probably expire before judicial review runs out over the rate. [00:13:14] Speaker 06: I mean, in most instances, right, between the district court and if there's appeal. [00:13:18] Speaker 06: So would you anticipate this happening [00:13:21] Speaker 06: You know, each year it seems historically one side or the other is unhappy with the rates. [00:13:26] Speaker 06: So do we have a system where we have these appeals and then the agency has to continually correct and reallocate and adjust invoices when there are errors? [00:13:38] Speaker 06: And how do you envision that working practically? [00:13:41] Speaker 01: It's something that we're in the midst of, so as you have discerned. [00:13:46] Speaker 01: But it's a relatively recent phenomenon [00:13:49] Speaker 01: these rates are being challenged. [00:13:51] Speaker 01: What's happened is there's been substantial increase in the costs that have motivated the need for litigation. [00:13:59] Speaker 01: I certainly wouldn't expect this to occur, but you're correct, Your Honor. [00:14:03] Speaker 01: We're on something of a conveyor here because of this annual rate-making. [00:14:08] Speaker 01: And one of the reasons the 2016 rule draws our attention at this level is that its assumptions and conclusions carry over into each new rule. [00:14:22] Speaker 01: And if we don't get a grip on it now, it becomes something that's subject to repetition that evades review in perpetuity. [00:14:30] Speaker 06: That is another question I had. [00:14:31] Speaker 06: If we were to vacate the 2016 rule, how would that impact [00:14:36] Speaker 06: the subsequent rules, 2017 through 2019. [00:14:39] Speaker 06: Does it undermine those rules, since you say there's a logic in the 2016 rule that's carried forward? [00:14:47] Speaker 01: No, I think in terms of the rules themselves, as opposed to issues that may be raised by discussion and comments or discussion and supplemental information, the rules stand on their own two feet. [00:14:59] Speaker 01: The pilots challenged the 2017 rule because of a provision relating to expensing of attorney's fees. [00:15:06] Speaker 05: So given some of the objections raised by the agency in light of allied signal and the district court's reliance on disruption, as a practical matter, if I had paid $500 too much, do you see me as getting a credit toward the 217, 218, 219 rate? [00:15:36] Speaker 05: That's how it would work. [00:15:37] Speaker 05: You wouldn't go back to the original recipient of the extra 500, the pilot. [00:15:48] Speaker 01: Well, Your Honor, the money has changed hands from the rate payers to... Where is the money? [00:15:57] Speaker 01: The money is in the pilot's hands. [00:15:59] Speaker 05: I know. [00:15:59] Speaker 05: So that's my point. [00:16:02] Speaker 05: And the agency says, well, the pilot may have spent the money, et cetera. [00:16:05] Speaker 05: It's not as though it could go back to the pilot, as I understand the agency's position, or it would be too difficult to do that. [00:16:13] Speaker 05: But all the questions that Judge Rao is raising, it seems to me, come up. [00:16:19] Speaker 05: And we see this all the time in other agencies, where Congress has specifically authorized the agency to grant refunds, make corrections. [00:16:30] Speaker 05: Now, you refer to the agency's authority to correct invoices. [00:16:35] Speaker 05: And you think that's broad enough to cover the type of credit refund remedy you're seeking. [00:16:43] Speaker 05: Is that your argument? [00:16:45] Speaker 01: Yes, because the invoice reflects a weighting factor multiplier that was not contemplated by the rule itself. [00:16:56] Speaker 01: And so, I mean, to us, it seems glaringly obvious that the Coast Guard should have considered it. [00:17:03] Speaker 01: It seemed that way to the district court, I think. [00:17:05] Speaker 01: But the Coast Guard has that authority. [00:17:08] Speaker 01: The Coast Guard also, the courts have the authority to remand in a way that requires an effective remedy. [00:17:16] Speaker 01: Getting to the initial part of your question, hypothetically the rate payer pays $500. [00:17:22] Speaker 01: We've couched this as a refund or a credit. [00:17:27] Speaker 01: The credit to us seemed to address a convenience issue for the pilots. [00:17:33] Speaker 01: What we are trying to avoid, though, and we do not think a cost-based rate-setting system permits is for that money just to be sunk, for that money just to be lost. [00:17:44] Speaker 05: I understand that, but the pilot, let's assume I receive the $500 and I've spent it. [00:17:52] Speaker 05: So are you saying that in 2019 I would not get [00:17:58] Speaker 05: whatever it is, $700, I would only get $200 because I had that extra $500 earlier. [00:18:06] Speaker 05: Is that the way you commonplace this? [00:18:08] Speaker 05: This is just a bookkeeping calculation. [00:18:14] Speaker 01: The calculation, yes, is just arithmetic. [00:18:18] Speaker 01: And indeed, our credit proposal is simply that [00:18:26] Speaker 01: And by the way, one of the things we're trying to do is to ensure that the people receiving redress here are the people who paid the rates. [00:18:36] Speaker 05: No, I understand. [00:18:37] Speaker 05: I'm assuming that can be demonstrated. [00:18:39] Speaker 05: If we can't demonstrate it, then that's another issue. [00:18:43] Speaker 05: But that's not the agency's objection, as I understand it. [00:18:47] Speaker 01: Well, the agency's objection, I think, is it's too hard. [00:18:50] Speaker 05: Well, it's a burden. [00:18:51] Speaker 01: It's a burden. [00:18:52] Speaker 01: But it's a burden to take millions of dollars. [00:18:55] Speaker 01: And we believe the number is somewhere in the range of $10 to $15 million. [00:18:59] Speaker 05: So the rule you would want is that the authority to correct invoices is sufficiently expansive to authorize the agency to come up with a refund credit remedy. [00:19:20] Speaker 01: Yes, Your Honor, and regardless of that authority, we say that the court, the reviewing courts, in light of the APA violation, have every right to direct the Coast Guard to provide an effective remedy. [00:19:35] Speaker 05: What happened here is... To do what? [00:19:37] Speaker 01: To provide an effective remedy. [00:19:40] Speaker 01: The district court sent this back. [00:19:42] Speaker 01: The district court said it's best to leave it to the agency in the first instance. [00:19:48] Speaker 01: Excuse me, Your Honor. [00:19:49] Speaker 05: send it back as to the future. [00:19:52] Speaker 01: Well, it's not clear. [00:19:56] Speaker 01: Our issue with the district court on the remedy is that it offered an essentially ineffectual remedy. [00:20:05] Speaker 01: The Coast Guard did nothing. [00:20:06] Speaker 01: The Coast Guard's response to this is here. [00:20:09] Speaker 02: I thought what Judge Rodgers was asking you, I think, is that if we focus on the credit part of your suggested way to resolve this, [00:20:19] Speaker 02: then what would happen is if you think it's 10 to 15 million dollars that was shifted over to the pilots, that shouldn't have been shifted over to the pilots, then what you would see as the appropriate way to resolve this and by way of credit would be in the future, there would be 10 to 15 million dollars that would otherwise go to the pilots that would be, that would not be charged to the shippers. [00:20:42] Speaker 02: You just make up for it in the future. [00:20:43] Speaker 02: So it would be a shift back. [00:20:45] Speaker 02: It's just that temporarily it wouldn't be [00:20:49] Speaker 02: go back to the pilots and say, hey, fork over $10 to $15 million that you shouldn't have gotten for 2016, it would be, forgo $10 to $15 million that you would otherwise get for 2020, because that's the amount that you got in 2016 that you shouldn't have. [00:21:06] Speaker 01: Yes, we have no legal [00:21:10] Speaker 01: quals about suggesting to the court that it should be a refund. [00:21:14] Speaker 01: We've offered this alternatively though because we understand that there are convenience issues involved that may suggest a credit. [00:21:23] Speaker 01: But we keep coming back to the point, how can it be to let stand that this error simply transferred these substantial funds [00:21:34] Speaker 01: with no provision of service and no cost incurred. [00:21:37] Speaker 01: The statute does not contemplate that. [00:21:39] Speaker 05: All right. [00:21:39] Speaker 05: Why don't we hear from the agency? [00:21:41] Speaker 01: All right. [00:21:41] Speaker 05: Thank you very much. [00:22:03] Speaker 04: Good morning. [00:22:04] Speaker 04: I'm Jane Lyons. [00:22:05] Speaker 04: I'm from the U.S. [00:22:05] Speaker 04: Attorney's Office and I'm here on behalf of the Coast Guard. [00:22:09] Speaker 04: May it please the Court. [00:22:10] Speaker 04: The District Court found that the Coast Guard's rate methodology adopted in 2016 was generally sound. [00:22:19] Speaker 04: The Coast Guard here did not face [00:22:24] Speaker 04: based on the district court's finding that two aspects of the rule were not sufficiently justified. [00:22:29] Speaker 04: They did not face what my friend on the other side has characterized as an arithmetic problem. [00:22:34] Speaker 04: At the very least, it's an algebra problem. [00:22:37] Speaker 04: And I hate to go to math quickly, but there we are. [00:22:40] Speaker 04: This is not a simple problem that could be quickly remedied. [00:22:44] Speaker 04: As Judge Rao pointed out early in the argument, the correct rate would have to be found in order to do these adjustments to the billing [00:22:54] Speaker 04: invoices as has been suggested, and that is not a simple matter. [00:22:59] Speaker 05: Why not? [00:23:00] Speaker 04: Pardon me, Your Honor? [00:23:02] Speaker 05: Why not? [00:23:02] Speaker 04: Why not? [00:23:03] Speaker 04: The first thing the District Court found was that using the Canadian pilot base rate with a 10 percent increment had not been sufficiently justified to account for the difference between the Canadians being government employees and the pilots not being. [00:23:17] Speaker 04: So rates as high as 35 percent had been recommended or suggested [00:23:23] Speaker 04: in some of the comments the Coast Guard had received. [00:23:25] Speaker 04: So it's possible that in fixing that problem, if they had to go back, that rate might go up. [00:23:32] Speaker 04: And it's impossible to see how the offsetting effect of accounting for the weight factors and this problem, how that would mathematically work out. [00:23:40] Speaker 05: Wouldn't that happen any time an agency has to correct an invoice? [00:23:46] Speaker 05: It's saying this invoice is an error. [00:23:50] Speaker 04: Well, no. [00:23:52] Speaker 04: And that gets to the nature of the judicial power and APA review. [00:23:58] Speaker 05: In other words, I understand how you want to characterize this, but I'm not sure if that's dispositive, whether it's calculus or arithmetic or algebra. [00:24:13] Speaker 04: Yeah. [00:24:16] Speaker 04: At the very least, I think we can agree it isn't very easy on its face, because if... Well, we don't know. [00:24:22] Speaker 05: I mean, I understand agency every year has to come up with these calculations. [00:24:27] Speaker 05: So it knows how to do it. [00:24:30] Speaker 04: Well, it knows how it's doing it now. [00:24:32] Speaker 04: And that's an interesting point. [00:24:33] Speaker 04: And if I could just. [00:24:34] Speaker 05: But it knows how it has the records for how it was doing it in 2016, or for 2016. [00:24:41] Speaker 04: Yes, it does. [00:24:43] Speaker 05: I'm not suggesting it's as simple as adding one and two together. [00:24:48] Speaker 05: But it's not an impossible task. [00:24:50] Speaker 05: It has to do this. [00:24:51] Speaker 05: And Congress has authorized it to do it. [00:24:54] Speaker 04: Congress has authorized it to make a new rate every year. [00:24:57] Speaker 04: Congress has not authorized a retroactive rate to be imposed. [00:25:02] Speaker 05: But again, you're putting labels on things. [00:25:06] Speaker 05: And I just want to be clear that that's the way the court should view it. [00:25:09] Speaker 05: Because hypothetically, suppose the agency acknowledges the 2016 rates were 20% too high. [00:25:18] Speaker 05: So everybody gets a 20% credit going forward, equal to whatever that 20% is in dollars and cents. [00:25:26] Speaker 04: So I think what the district court correctly recognized here is that there are a variety of ways in which the agency could decide to implement that sort of a correction. [00:25:36] Speaker 04: It might be, perhaps, [00:25:40] Speaker 04: overly onerous to do it in a single year. [00:25:42] Speaker 04: And so you might phase that in over three years or something. [00:25:46] Speaker 04: And because there is an annual rate making and because there's a federal advisory group that gives the agency input that it has to take account of and because it has the benefit of viewpoints from the different constituencies, [00:25:59] Speaker 04: It is a measured but meaningful remedy to tell the agency to go forward and do whatever it wants to do in a prospective basis. [00:26:07] Speaker 05: Regardless of the fact that I'm out $500? [00:26:11] Speaker 04: It's not clear that you are out $500. [00:26:13] Speaker 04: And I do disagree with my friend on the other side's suggestion that no services were provided for those instances. [00:26:21] Speaker 04: The transportation took place. [00:26:24] Speaker 04: The pilot was there. [00:26:26] Speaker 04: there is a possibility that the rate was higher than it would have been if the Coast Guard had done everything properly. [00:26:33] Speaker 02: If I may just... Can I ask this? [00:26:34] Speaker 02: So in 2017, you corrected the weighting issue, right, going to the Coast Guard? [00:26:38] Speaker 04: After 2016, that corrected the weighting issue. [00:26:41] Speaker 04: Right, right. [00:26:41] Speaker 04: So... Can I offer a brief perspective on that issue? [00:26:43] Speaker 04: It's not as glaringly obvious as it has been portrayed. [00:26:47] Speaker 04: The Coast Guard changed the way it calculated base rates in 2016. [00:26:51] Speaker 04: Historically, it had been applying weighting factors for many years. [00:26:55] Speaker 04: And in fact, historically, they had been below one. [00:26:58] Speaker 04: So they would have reduced the rates if that had still been the case. [00:27:01] Speaker 04: By the time of 2016, they had stopped using rates below one. [00:27:05] Speaker 02: OK, let me just ask this question. [00:27:07] Speaker 02: So suppose that it's commonly understood, and you may disagree with the premise, but just bear with me on the hypothetical. [00:27:14] Speaker 02: Let's just suppose that it's commonly understood that the rates were too high in 2016 because of a failure to take account of weighting. [00:27:22] Speaker 02: And then let's also suppose that however difficult it is, somebody could go back and redo the calculations to decide, oh, if we had taken into account waiting, then here's what the rates would have been, and here's what would have been paid over. [00:27:34] Speaker 02: It might be difficult to do, but let's just say that you can do that. [00:27:37] Speaker 02: Then in your view, does the Coast Guard have discretion? [00:27:41] Speaker 02: Not whether they should be mandated to do it, but did they have discretion going forward to say, okay, now we've done that. [00:27:47] Speaker 02: We realized that the weighting wasn't taken into account. [00:27:50] Speaker 02: It should have been. [00:27:51] Speaker 02: We've also done all the calculations to figure out what a difference that would have made. [00:27:55] Speaker 02: You know, they say $10 million to $15 million. [00:27:56] Speaker 02: Maybe the Coast Guard says, no, it's like $2 million. [00:27:58] Speaker 02: I don't know, but let's just, whatever the Coast Guard comes up with. [00:28:01] Speaker 02: And then they say, well, here's what we're going to do. [00:28:04] Speaker 02: Now we see that actually the shippers were charged $2 million too much. [00:28:08] Speaker 02: And what we're going to do is we're going to effectuate that going forward by starting in 2019 or 2020. [00:28:14] Speaker 02: You could do it over three years, as you say, but somehow we're going to make up for that $2 million by reducing the rates on the proportionally appropriate basis to achieve rough equity. [00:28:34] Speaker 04: Yes, absolutely. [00:28:35] Speaker 04: There is discretion in the rate making, and there's a last step of the eight or so step formula provides for that exactly that type of adjustment on the Coast Guard's discretion. [00:28:46] Speaker 04: And that's exactly how it should be taken account of. [00:28:49] Speaker 04: And it is, to Judge Rao's point about this sort of what happens then, is there more litigation? [00:28:56] Speaker 04: Yes, but what we don't have, the alternative is to have this case stay open and recycle annually [00:29:04] Speaker 04: And instead, what you have is a more crisply, you have a new agency action to be challenged on the basis of the record at that time and a new exercise of discretion. [00:29:13] Speaker 04: And I think that's a better outcome. [00:29:15] Speaker 02: And the new agency action is triggered how? [00:29:17] Speaker 04: The new rate making in which the Coast Guard either applies the discretion somebody's going to sue. [00:29:23] Speaker 04: Let's just assume that. [00:29:25] Speaker 04: When they exercise their discretion in that fashion, if the shippers say it should have been $15 million and you only took account of two, they'll sue. [00:29:32] Speaker 04: And if the pilots are unhappy, [00:29:34] Speaker 02: But what's going to spur the Coast Guard to take account of it at all going forward? [00:29:39] Speaker 04: A couple of things. [00:29:40] Speaker 04: Could be the advisory committee makes recommendations to do that based on the district court's decision. [00:29:45] Speaker 04: And the district, let's remember here, the Coast Guard acted on the weighting factors issue before the district court employed any remedy at all. [00:29:53] Speaker 02: For 2017. [00:29:53] Speaker 04: For 2017, they went right out in April, put out a supplemental notice of proposed rulemaking and said, hey, this is what we're going to do. [00:30:01] Speaker 04: This is how we're going to go forward. [00:30:03] Speaker 02: And what if the Coast Guard doesn't? [00:30:04] Speaker 02: Let's say, is there an action that can be brought to compel the Coast Guard to take it into account? [00:30:09] Speaker 02: If your problem is, if your objection is, this shouldn't be done under the auspices of this litigation, but it can be something that the Coast Guard takes into account going forward, and the shippers say, it's 2024, we're still owed money for 2016 the way we calculate it, you guys keep talking about potentially doing something you haven't done anything, what then? [00:30:28] Speaker 04: They could bring, as they have, their pending actions in the district court [00:30:32] Speaker 04: about the 2018 and the 2019 rulemaking, they can bring an action for agency action unreasonably delayed. [00:30:38] Speaker 04: For example, that's a claim under the APA. [00:30:41] Speaker 04: But more, they're not going to even need to use that because they will have made comments to the notice of proposed rulemaking. [00:30:47] Speaker 04: And when the final rule comes out, if it's arbitrary and capricious for the agency not to have acted appropriately, then that [00:30:56] Speaker 04: in the ordinary course. [00:30:57] Speaker 06: What statutory authority does the Coast Guard have to take into account, you know, say, a miscalculation in the past and apply it to, you know, shippers and pilots in the future, which may or may not be the same? [00:31:11] Speaker 06: You know, I understand they're all going for key players, but they may be some different players. [00:31:15] Speaker 06: I mean, what statutory authority do they have to take something from the past and implement that in the rates going forward? [00:31:23] Speaker 04: Inherent in the rate-making function generally is some discretion. [00:31:28] Speaker 04: In this particular scheme, costs is the driver in the statute. [00:31:33] Speaker 06: But it's not the cost of what's actually happening. [00:31:36] Speaker 04: But it's a past cost that might need to be considered. [00:31:41] Speaker 04: I believe that would be within the agency's discretion. [00:31:43] Speaker 04: And actually, your question [00:31:45] Speaker 04: It's important to remember everything. [00:31:46] Speaker 06: So you would put it under the cost prong, because they have to look at the public interest and the costs. [00:31:50] Speaker 04: Yes. [00:31:50] Speaker 06: You would think it's part of the costs. [00:31:52] Speaker 06: Yes, your honor. [00:31:53] Speaker 06: Even though there are two sets of private entities which may not be identical in the future rate making. [00:32:00] Speaker 04: Yes. [00:32:01] Speaker 04: So what you're saying is that it's possible that pilots working in 2020 who perhaps were not even working in 2016 would be suffering a lower rate than they might otherwise be getting. [00:32:13] Speaker 06: Right. [00:32:13] Speaker 04: Yes, that is possible and part of being in a regulated community. [00:32:17] Speaker 06: And you think the Coast Guard has the authority to do that? [00:32:20] Speaker 06: I mean, because that won't be the actual costs of that year. [00:32:25] Speaker 04: Yes, the statute doesn't talk in terms of setting a rate that is limited to costs for that year. [00:32:30] Speaker 04: The statute's not that specific. [00:32:32] Speaker 04: It's perhaps inherent, and it might make an interesting challenge. [00:32:37] Speaker 04: This is not something I've thought through totally or had an opportunity to talk to the Coast Guard about. [00:32:42] Speaker 04: I would like to say one more thing about your question now, and it's this. [00:32:50] Speaker 04: If it were to pass that the Coast Guard were to say, we're going to impose this, we're going to take money away from pilots and force it, I'm not even sure they have the authority to do this, but to order those payments to shift that way, [00:33:03] Speaker 04: I'm not really aware of Coast Guard authority to do that. [00:33:05] Speaker 06: I'm wondering if they have authority to do either one, maybe. [00:33:08] Speaker 04: It's possible that they don't have. [00:33:11] Speaker 04: I think they probably have authority to make some account for it in a rate making. [00:33:16] Speaker 04: It would be better, and I think it would be better if it were sooner, right? [00:33:20] Speaker 04: So if the litigation happens in the district court kid's direction, as happened here, and then the Coast Guard does what it thinks is appropriate as quickly as it can, that's the best outcome. [00:33:32] Speaker 04: And that's what we have here. [00:33:34] Speaker 04: We have meaningful direction and just insight that they gained from the litigation that caused the agency to act. [00:33:41] Speaker 04: It may not be in a way that completely pleases either party. [00:33:44] Speaker 02: I mean, I assume this happens when in a rape-making capacity, some commenter will come in and say, you know, there's something that just hasn't been taken into account that's been going on for years. [00:33:55] Speaker 02: Right. [00:33:56] Speaker 02: the agency will then say, all right, you're right, we need to take that into account and we'll take it into account going forward. [00:34:02] Speaker 02: This just happens to be one where it's a discrete instance of something that happened within the compliance of a particular 12-month period. [00:34:08] Speaker 02: And then there would be the ability on the part of the agency, perhaps not the mandatory obligation, but the discretionary ability on the part of the agency to take that into account and then offset it. [00:34:20] Speaker 02: by things that you raised. [00:34:22] Speaker 04: Or not. [00:34:23] Speaker 02: Or not. [00:34:23] Speaker 04: Or decide not to. [00:34:24] Speaker 04: And the closest case I can point you to. [00:34:26] Speaker 02: As long as it's recent decision making not to do it. [00:34:30] Speaker 02: Right. [00:34:31] Speaker 04: And this court has held in a similar kind of context that doing so without notice and comment procedures was even available to the agency. [00:34:39] Speaker 04: And that's Methodist Hospital of Sacramento versus Shalala, 38F2nd, 1225. [00:34:46] Speaker 04: It's a decision from this Court in 94 that addresses that issue that said it was basically reasonable to adopt, somewhat by implication, a policy of not imposing the retroactive correctiveness. [00:35:00] Speaker 04: And maybe it was out of the concerns that you're expressing, Judge Rao. [00:35:04] Speaker 04: So that's the closest case I can point you to on this. [00:35:08] Speaker 04: Court has no further questions. [00:35:10] Speaker 04: We'd ask the district court to form. [00:35:12] Speaker 05: We hear from counsel for intervener. [00:35:20] Speaker 03: Thank you, Your Honors, and I know you've been through a lot, so I'll just make a few quick points. [00:35:25] Speaker 03: Mostly just, I think, kind of correct thoughts on what's going on. [00:35:29] Speaker 03: First of all, to start with the question of statutory authority, I think that is an issue, and I think Judge Roberts, you pointed out some statutes specifically provide for that authority. [00:35:38] Speaker 03: FERC is one. [00:35:38] Speaker 03: Under the Federal Power Act, for a long time they couldn't order refunds. [00:35:42] Speaker 03: There's specific statutory authority. [00:35:44] Speaker 03: You have to give notice. [00:35:46] Speaker 03: There's a refund effective date, used to be 60 days, then it's not. [00:35:49] Speaker 03: That's exactly the kind of statutory authority we don't have here to go back. [00:35:53] Speaker 03: And the Coast Guard has taken the position. [00:35:55] Speaker 03: The government counsel, you know, in response to questions about discretion, I understand she doesn't want to give up her agency's discretion. [00:36:03] Speaker 03: But really, I think she kind of wound up being agnostic on whether they have that authority. [00:36:09] Speaker 03: I don't think they do. [00:36:09] Speaker 03: And the Coast Guard, certainly in the past, has taken the position they don't have that authority. [00:36:13] Speaker 05: Well, she wasn't agnostic. [00:36:15] Speaker 05: You heard her. [00:36:16] Speaker 05: She wasn't agnostic. [00:36:16] Speaker 05: She said she thought. [00:36:18] Speaker 03: Well, then she said she hadn't really thought it through, and she wasn't speaking with the Coast Guard. [00:36:21] Speaker 03: I can tell you that when we raised this issue in the 2014 rate, and that was a very different case, because that really was, yeah, there was sort of a formula, and they did it. [00:36:30] Speaker 03: We raised that issue. [00:36:31] Speaker 03: The Coast Guard definitely took the position. [00:36:33] Speaker 03: They did not have the authority to go back and order refunds. [00:36:36] Speaker 03: We had a refund hearing in front of Judge Chutka, and she didn't seem all that anxious to wade into the issue, and so we settled out. [00:36:43] Speaker 06: Well, there's a difference between a refund [00:36:46] Speaker 06: in the past and also taking into account, you know, what's happened in the past in future rate makings. [00:36:53] Speaker 06: Do you think the ClipsCard has the authority to do that? [00:36:55] Speaker 03: Yeah, I think that's right. [00:36:56] Speaker 03: And I think it, and this case provides a good example of, I think, first of all, just to correct an error that appears in the appellant's briefs. [00:37:04] Speaker 03: Judge Contreras did not find that they were overcharged. [00:37:08] Speaker 03: As a matter of fact, when they kept arguing that he found they overcharged, he specifically said in his remedy hearing, [00:37:14] Speaker 03: No, they're misunderstanding my argument. [00:37:16] Speaker 03: I just said they had to consider the weighting factors. [00:37:19] Speaker 03: They could have come back and kept the rate in place. [00:37:22] Speaker 03: They could have kept it higher. [00:37:23] Speaker 03: They could have kept it lower. [00:37:24] Speaker 03: But this notion that he found an overcharge that's unremedied isn't completely inconsistent with this ruling. [00:37:30] Speaker 03: He specifically said that hadn't happened. [00:37:32] Speaker 03: They could have come back and said, yes, we were right not to consider the weighting factors in 2016. [00:37:38] Speaker 03: And I think it kind of goes a little bit to Judge Rao's point. [00:37:41] Speaker 03: One of the reasons I think they did that, and it goes to this kind of taking into account of past history. [00:37:46] Speaker 03: I mean, I think Judge Jennifer Esendett [00:37:47] Speaker 03: And any agency can take account what's been going on. [00:37:51] Speaker 03: The weighting factors issue was presented in the 2016 rate. [00:37:55] Speaker 03: The industry came in and said, look, you should take these into account in projecting revenues and therefore you should lower the rates. [00:38:01] Speaker 03: And the agency's looking at a situation where they needed to raise the rates for all the reasons that the Coast Guard said that were amply supported and the judge [00:38:11] Speaker 03: And we need to have more pilots. [00:38:15] Speaker 03: And we're a little bit worried because when we've been projecting revenues in the past, we've been to, we've over projected. [00:38:23] Speaker 03: The revenues have come in lower. [00:38:25] Speaker 03: Year after year after year, the revenues have come in lower. [00:38:28] Speaker 03: So you're telling us now, industry, we should lower the rates because we should change the projections to project higher revenues from this, but that hasn't been our experience. [00:38:39] Speaker 03: So you may have a point, we'll look at it for a year, and then we'll change it, which is what they did. [00:38:45] Speaker 03: And that was their understanding. [00:38:46] Speaker 03: That was how they kind of took it into account going forward. [00:38:49] Speaker 03: Faced with it in 2016 with a history [00:38:52] Speaker 03: of over-projecting revenues. [00:38:54] Speaker 03: They were reluctant to reduce their projection of, they were reluctant to increase their projection of revenues, but they didn't want to fix it then. [00:39:03] Speaker 03: They wanted to fix it after they had the experience in 2016. [00:39:07] Speaker 03: They had the experience in 2016. [00:39:08] Speaker 03: They changed it going forward. [00:39:11] Speaker 03: And I guess this gets to the last point I want to make, and I think it goes again to Judge Rao's statement. [00:39:15] Speaker 03: where you've got this endless loop where every year you're litigating the raid and then you're going back and settling, you know, upsetting settled invoices. [00:39:23] Speaker 03: which is not the way the final grade doctrine works. [00:39:26] Speaker 03: It's not the way that rules that were in place work. [00:39:29] Speaker 03: That's just never been the way it's been done. [00:39:32] Speaker 03: You know, we were underpaid for many years. [00:39:34] Speaker 03: We didn't go back and say, hey, you projected revenues of X. The revenues came in at 90% of X. Here, industry, here's your bill for the 10%. [00:39:44] Speaker 03: We went back into the next rating, next rulemaking, and said, look, you've been under projecting revenues. [00:39:49] Speaker 03: Fix it this time. [00:39:50] Speaker 03: And then ultimately finally in 2016 they fixed it. [00:39:54] Speaker 03: Finally we got a decent rate increase and of course the rest is history. [00:39:58] Speaker 03: They've been litigating every rate since then. [00:40:00] Speaker 06: Can I just ask, are there any efforts for legislative change to the statutory scheme? [00:40:06] Speaker 03: The only recent legislative change was the change that required the rates to be set every year, and that was in 2005, and that was actually the result of litigation because the agency had been delaying rate increases for so long that finally Congress said, look, you've got to do this every year so that you can keep up. [00:40:25] Speaker 06: And, of course, what that all... That was 2005. [00:40:28] Speaker 03: That was in 2005. [00:40:28] Speaker 03: And of course, that's one of the reasons we had the big rate increases that they keep complaining about is they were so low for many years because the Coast Guard never got around to the change. [00:40:37] Speaker 03: Now we've got to have a change every year, and I think that allows you to sort of fix the problems. [00:40:41] Speaker 03: If the industry identifies a problem, they identify a problem, it can then be taken into account in the rate going forward. [00:40:48] Speaker 03: But we've never had a circumstance, and Judge Contreras found this in the troop, we've never had a situation where when that's fixed going forward, we then go back and upset all the invoices that have been issued before. [00:41:00] Speaker 05: Thank you. [00:41:02] Speaker 03: Thank you. [00:41:08] Speaker 01: I would first like to address my friend Mr. Longstreet's point about the history of this. [00:41:28] Speaker 01: Since 2015, every year, the Coast Guard's projected revenue figures [00:41:38] Speaker 01: have been exceeded by the actuals by significant percentages. [00:41:43] Speaker 01: On average, over the whole period, it's been 30%. [00:41:47] Speaker 01: The ratepayers see this and the affected businesses see this exactly from the other end of the telescope on that. [00:41:58] Speaker 01: What we have is a system that routinely over-generates revenue by significant amounts and has year after year after year since 2015. [00:42:07] Speaker 01: That explains [00:42:08] Speaker 01: in part why we're in this period of litigation. [00:42:13] Speaker 01: The ratepayers prior to attacking this 2016 rule had not actively litigated these things. [00:42:22] Speaker 01: I don't want the court to walk away with the opinion that it's inevitable that there's always going to be one side or the other fussing about this and the agency is just stuck in the middle. [00:42:31] Speaker 01: The pilotage costs are now the highest [00:42:35] Speaker 01: single cost for a vessel operator once the vessel comes into the lakes. [00:42:41] Speaker 01: These pilotage costs have risen by double digit percentages and they're completely out of phase with the Canadian pilot's costs, so this is a problem that we'll have to constantly address. [00:42:54] Speaker 01: Going back to the issue of remedy, the Coast Guard knew when it issued its supplemental notice of proposed rulemaking in [00:43:05] Speaker 01: in the spring, April of 2017. [00:43:08] Speaker 01: It had a year-end financial picture of what the 2016 rates had done, and they said they have overproduced by [00:43:23] Speaker 01: roughly 28 percent, which is exactly what we predicted because of the arithmetic certainty of the error. [00:43:30] Speaker 01: We knew what the average weighting factor was. [00:43:32] Speaker 01: We knew that the Coast Guard didn't account for it. [00:43:36] Speaker 01: The Coast Guard did nothing. [00:43:37] Speaker 01: While the rates were still in effect, the Coast Guard could have done something. [00:43:42] Speaker 01: The rates were still in effect. [00:43:43] Speaker 01: They remained in effect for almost an entire additional navigation season. [00:43:48] Speaker 01: The Coast Guard did nothing. [00:43:49] Speaker 01: The Coast Guard did nothing on the remand from the District Court to address this in terms of a remedy. [00:43:56] Speaker 01: Judge Contreras told them, we'll give you the first shot at this remedy, and nothing came back. [00:44:02] Speaker 01: In fact, the silence while our 60-day clock was ticking on the appeal was why we're here before you today. [00:44:09] Speaker 01: They were going to do nothing about it. [00:44:12] Speaker 01: Approximately $10 million to $15 million has transferred, and [00:44:18] Speaker 01: I would take issue with Ms. [00:44:20] Speaker 01: Lyon's statement. [00:44:21] Speaker 01: A service wasn't provided for this. [00:44:23] Speaker 01: This is just a tax, essentially. [00:44:27] Speaker 01: It's not a cost-based amount. [00:44:29] Speaker 01: It is an arithmetic error. [00:44:31] Speaker 01: The Coast Guard has authority to change this either because the court directs them to do so by providing an effectual remedy or because it has inherent authority in its own ranks to adjust these [00:44:45] Speaker 01: passed in. [00:44:46] Speaker 01: As my time has expired, I would, with the indulgence of the Court, just like to say we have also raised two elements that we've not addressed here today. [00:44:54] Speaker 01: These are briefed, particularly though I would draw the Court's attention to the fact that there is a detailed Coast Guard study in the appendix of JA 476 that [00:45:09] Speaker 01: that we believe was the best empirical data the Coast Guard had available to it, and it did not follow it. [00:45:16] Speaker 01: And we would ask that attention be paid for that. [00:45:20] Speaker 05: Thank you. [00:45:20] Speaker 05: I'll take the case under advisement. [00:45:22] Speaker 01: Thank you, Your Honors.