“Inadequate-Service” as a Statutory Pre-Condition for STB-Ordered Reciprocal Switching:
Commentary on Grand Trunk Corporation v. Surface Transportation Board, No. 24-1811 (7th Cir. 2025)

1. Introduction

For decades, the Surface Transportation Board (“STB”) and its predecessor, the Interstate Commerce Commission (“ICC”), have been empowered to order reciprocal switching—a regulatory mechanism that forces an incumbent freight railroad to interchange traffic with a competing carrier so that a “captive” shipper gains competitive access. In 2024 the STB adopted a sweeping Final Rule entitled “Reciprocal Switching for Inadequate Service,” aimed at improving Class I rail service by allowing shippers/receivers to trigger mandatory switching whenever certain performance standards were not met. Four rail carriers—CSX Transportation, Union Pacific Railroad, Grand Trunk Corporation, and Illinois Central Railroad—filed a Hobbs-Act petition in the Seventh Circuit, contending that the Rule exceeded the STB’s statutory authority under § 11102(c) of the Staggers Rail Act of 1980, was arbitrary and capricious, and imposed ultra-vires data-reporting mandates.

The Seventh Circuit, in a meticulous opinion by Judge Scudder, agreed that the Rule violates the statute because it allows mandatory switching without first finding that the incumbent’s service is inadequate. The court therefore vacated the Rule in its entirety and remanded the matter to the Board.

2. Summary of the Judgment

• Jurisdiction: Hobbs Act (28 U.S.C. §§ 2321, 2342(5), 2344); petition timely; carriers were “parties aggrieved.”
• Standard of review: APA § 706(2)(C) (agency action “in excess of statutory authority”). The court sidestepped the Supreme Court’s unfinished debate in Bondi v. VanDerStok (2025) over “facial” vs. “no-set-of-circumstances” tests and simply asked whether the Rule itself conflicts with the statute.
• Holding: Section 11102(c) requires the STB to find “some actual necessity or compelling reason” before ordering reciprocal switching, which the historical ICC caselaw equates with a finding that existing service is inadequate. The Final Rule expressly disclaims any need to determine service inadequacy; therefore it exceeds statutory authority and must be vacated.
• Disposition: Petition granted, Final Rule vacated, case remanded. Remaining challenges to performance-metrics methodology and data-reporting requirements left unresolved.

3. Analysis

3.1 Precedents Cited and Their Influence

1. Central States Enterprises, Inc. v. ICC, 780 F.2d 664 (7th Cir. 1985) – The cornerstone. Construed § 11102(c)’s phrase “practicable and in the public interest” as importing the ICC’s pre-1980 “actual necessity or compelling reason” standard borrowed from § 11102(a) cases on joint terminal use. Central States emphasized that Congress had intended identical treatment for switching and terminal-access petitions.
2. Midtec Paper Corp. v. United States, 857 F.2d 1487 (D.C. Cir. 1988) – Confirmed that §§ 11102(a) & (c) are construed in lockstep; historically the ICC demanded proof of “actual necessity” (i.e., inadequacy) before ordering forced access.
3. Historic ICC opinions (1920s–1970s) – e.g., Jamestown Chamber of Commerce (1933), Mfrs. Ass’n of York (1922), Hastings Commercial Club (1926) – All denied forced access where incumbent service was adequate, thereby embedding the inadequacy prerequisite.
4. Administrative-law doctrines – SEC v. Chenery Corp. (1943) (agency action invalid if premised on legal error); Loper Bright Enterprises v. Raimondo (2024) (Chevron overruled; courts use independent judgment on statutory meaning); Bondi v. VanDerStok (2025) (unresolved standard for facial APA challenges).

3.2 Court’s Legal Reasoning

1. Step 1 – Statutory Text and History. Section 11102(c) authorises the Board to order switching when it is “practicable and in the public interest.” Because Congress lifted that exact phrase from § 11102(a)—a provision with a “long regulatory history”—the Seventh Circuit applied the canon that Congress “brings the old soil with it,” importing settled ICC precedent into § 11102(c).
2. Step 2 – Meaning of “Public Interest”. Pre-Staggers cases construed “public interest” to require “some actual necessity or compelling reason,” routinely satisfied only by proof of inadequate service. Central States authoritatively adopted that interpretation, making inadequacy a statutory prerequisite.
3. Step 3 – Confronting the Final Rule. The Rule’s architecture relies on three objective performance standards (on-time arrivals, consistency of transit times, local service reliability) but disavows any finding that failure equals inadequate service. Moreover, the Rule says prescriptions “will” issue whenever (i) a metric is failed; (ii) no affirmative defence applies; and (iii) the switch is practicable—yet it also rejects an affirmative defence based on adequate service and allows prescriptions even if service problems have been cured.
4. Step 4 – Resulting Conflict. Because the Board can compel switching without determining that incumbent service is inadequate, the Rule conflicts with the statute, exceeds the Board’s authority under § 11102(c), and must be vacated under APA § 706(2)(C).

3.3 Potential Impact of the Judgment

• STB Rulemaking Reset: The Board must now craft a new rule (or adjudicate case-by-case) that includes an explicit, evidence-based finding of inadequate service before ordering switching.
• Higher Burden for Shippers: Petitioning shippers will need to marshal proof of inadequacy rather than simply pointing to missed metrics.
• Guidance for Future Courts: Reinforces post-Loper Bright trend of thorough, non-deferential judicial scrutiny of agency power and insistence on fidelity to text/history.
• Administrative-Law Landscape: Signals that facial APA challenges remain potent even in a “no-set-of-circumstances” environment, as courts can still vacate rules that contradict statutory prerequisites.
• Rail Industry Equilibrium: Class I carriers avoid immediate exposure to broad switching prescriptions; however, the decision leaves open tailored orders where inadequate service can be shown.

4. Complex Concepts Simplified

Reciprocal Switching

A mandated agreement where an incumbent railroad transports a shipper’s railcars a short distance (“the switch”) so that a competitor railroad can handle the long-haul portion, thereby injecting competition.

Inadequate Service

Service so deficient (delays, inconsistent transit, poor local switching) that regulators deem it fails common-carrier obligations; historically a prerequisite for forced access.

Performance Standards vs. Statutory Prerequisite

The STB’s metrics (average transit time, variability, local service) are indicators; the statute requires a broader legal finding of inadequacy, which the Rule omitted.

Hobbs Act Review

A special judicial-review scheme sending challenges to STB “orders” directly to the courts of appeals within 60 days.

Facial APA Challenge

A lawsuit attacking the validity of a regulation itself, without waiting for it to be applied. The Seventh Circuit assumed such a challenge is proper where the rule contradicts clear statutory limits.

“Practicable and in the Public Interest”

Dual statutory test: (1) operational feasibility (practicable); and (2) necessity/benefit to the public (public interest), historically satisfied only when incumbent service is inadequate.

5. Conclusion

Grand Trunk v. STB re-affirms a critical limitation on the Board’s authority: no reciprocal switching may be compelled unless and until the agency expressly finds the incumbent carrier’s service is inadequate. The decision revitalises the Seventh Circuit’s earlier precedent (Central States) and underscores the judiciary’s willingness, post-Loper Bright, to independently parse statutory text and history. Practically, the ruling halts the STB’s ambitious attempt to use objective metrics as a shortcut to forced competition, signalling that performance indicators are useful, but only as evidence toward the statutory inadequacy finding—not as a surrogate for it. Going forward, the Board must either:

• Develop a rule that explicitly ties prescriptions to formal findings of inadequate service (with procedural safeguards); or
• Proceed through individualized adjudication, applying the inadequacy test case-by-case.

For shippers, the path to competitive access remains open but more evidence-intensive. For carriers, the judgment preserves traditional protections against compelled sharing absent demonstrable failure. And for administrative-law observers, the case provides yet another illustration of courts enforcing “old soil” statutory constraints against modern regulatory innovation.