Notice & Comment

D.C. Circuit Review – Reviewed: Where Did the “Just and Reasonable” Rate Requirement Go?

The D.C. Circuit released eight opinions last week, including one under seal. The subjects ranged widely and included contract law, personal jurisdiction, insurance law, a defamation action, and the Speech or Debate Clause.

In Husky Marketing and Supply Company v. FERC, the D.C. Circuit denied petitions for review of FERC orders approving rates for crude-oil shipping. Judge Ginsburg wrote for the unanimous panel, which included Judge Millett and Judge Edwards. The only issue was whether FERC was arbitrary and capricious in its definition of the relevant geographic destination market. The court of appeals held that FERC’s explanation of its conclusion was reasonable. The Commission included two geographic areas in the definition of the destination market “because these areas contain the alternatives that would be available to shippers if [the pipeline] attempted to exercise market power.” The petitioners faulted FERC for not doing its own empirical analysis, but the D.C. Circuit concluded that “[t]he agency remains free to use empirical analyses and hypothetical monopolist tests as appropriate” and that it did not need to do a more detailed analysis to support the challenged orders.

Perhaps the most interesting part of the D.C. Circuit’s opinion was a footnote, which was about the “just and reasonable” rate requirement for oil pipelines:

Curiously, the “just and reasonable” rate requirement for oil pipelines is nowhere to be found in the current U.S. Code. The requirement was created by the Lodge Amendment to the Hepburn Act of 1906, which extended to oil pipelines the “just and reasonable” rate requirement the Interstate Commerce Act of 1887 had imposed upon railroads. See Hepburn Act of 1906, Pub. L. No. 59-337, ch. 3591, § 1, 34 Stat. 584, 584; Interstate Commerce Act of 1887, ch. 104, § 1, 24 Stat. 379, 379. The Interstate Commerce Commission administered the provision until 1977, when the Congress transferred statutory authority over it to the newly created FERC. Department of Energy Organization Act, Pub. L. No. 95-91, § 402(b), 91 Stat. 565, 584. The next year, the Congress repealed and replaced most of the Interstate Commerce Act, including the “just and reasonable” rate provision. Act of October 17, 1978, Pub. L. No. 95-473, § 4, 92 Stat. 1337, 1466–70. The 1978 Act, however, exempted from repeal the statutory provisions regulating the rates for oil transport by pipeline that the Congress had transferred to FERC the previous year, as they had existed on October 1, 1977. See id. § 4(c), 24 Stat. at 1470. The House of Representatives’ Office of the Law Revision Counsel deleted both the repealed and the unrepealed provisions of the Act from the U.S. Code. The Office included the unrepealed provisions in the 1988 edition of the Code as an appendix to Title 49, see 49 U.S.C. app. § 1 et seq. (1988), but it has not included them in any subsequent editions. Although the provisions are now absent from the U.S. Code, the “just and reasonable” rate requirement they impose upon oil pipelines and the regulatory authority they confer upon the FERC remain the law.

In Iowaska Church of Healing v. Werfel, the D.C. Circuit held that a church lacked standing to bring a RFRA claim challenging the IRS’s denial of 501(c)(3) status. The church uses ayahuasca tea – which contains a controlled substance – in its religious ceremonies. Under federal law, a charitable religious organization may apply to the DEA or to a federal court for an exemption for the use of a controlled substance. The church applied to the DEA and also sought tax-exempt status from the IRS. The DEA has yet to decide the church’s application for an exemption. After a years-long back-and-forth, the IRS denied 501(c)(3) status to the church, which sued. 

In an opinion by Judge Wilkins, joined by Judge Henderson and Judge Edwards, the D.C. Circuit held that the church lacked Article III standing. It reasoned that “[t]he economic injury the Church claims—the loss of the ‘inherently valuable statutory right’ to Section 501(c)(3) tax exemption—is unsupported by any clear assertions about how the economic aspect of that injury has harmed ‘the organization’s activities—with [a] consequent drain on the organization’s resources’ beyond a simple ‘setback to the organization’s abstract social interests.’” The church had forfeited other bases for standing “by referencing them only vaguely in a footnote.” 

Having swept the church’s RFRA claim aside on standing grounds, the D.C. Circuit avoided some potentially difficult issues involving the interpretation of the Supreme Court’s opinion in Gonzales v. O Centro Espirita Beneficente Uniao do Vegetal. Focusing upon 501(c)(3), the court of appeals disposed of the church’s challenge to the IRS’s order by concluding that the church’s “primary organizational and operational purpose— Ayahuasca use and ceremony—is illegal on its face without a [Controlled Substances Act] exemption and the Church did not prove otherwise to either the IRS or the District Court.” In reaching this conclusion, the court reasoned that O Centro, whatever else it might say, “did not . . . establish the presumptive legality of Ayahuasca use by any purportedly religious group” for purposes of an IRS determination under 501(c)(3).

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