By Charlie Delacruz, Senior Vice President and General Counsel
The Feb. 1 edition of the NGFA Newsletter contained an article about the availability of the widely respected and effective Surface Transportation Board’s (STB) Rail Customer and Public Assistance Office as an excellent venue that rail users can use – on a strictly confidential basis – to resolve a wide range of rail disputes with their carriers.
Another too-often-overlooked forum is available through NGFA itself – the unique Rail Arbitration and Mediation Service that celebrated its 20th anniversary in 2018.
In October 1998, the Class I railroads and rail shipper members of NGFA reached an agreement to arbitrate specific types of rail-related disputes. The regional and shortline railroads, which also are NGFA members, later joined. This was a one-of-a-kind and unprecedented step at the time to provide for a voluntary, industry-based means for formal dispute-resolution between rail carriers and their customers. To this day, no other industry has such a system.
Given the recent surge in the number of complaints on rail-related issues, it’s valuable to be reminded about the availability and continued relevance of this unique NGFA service. Here’s a refresher with some highlights and general observations:
- History: NGFA has been administering the arbitration of industry disputes since shortly after it was established in 1896. Using NGFA’s then 100-year-old arbitration system as the basic framework, the NGFA, the Association of American Railroads and the Class I rail carriers in 1998 reached an agreement to provide for compulsory, binding arbitration of specific types of disputes arising on or after Oct. 1, 1998. Under the original design, the participating companies were required to renew the agreement on a two-year basis. In 2002, the system was changed to operate on an opt-out basis. Thus, all NGFA Active, Allied and Transportation members (which incorporates all railroads and most rail shippers) are covered by, and have access to, NGFA Rail Arbitration unless and until they provide 90-days’ notice to NGFA of their intent to opt-out. Currently, no NGFA-member Class I railroad or shortline railroad has elected to opt-out.
- What the process covers: Regarding the types of disputes that are arbitrable, there is no limit on what the parties can mutually agree to arbitrate. The types of disputes that railroads and shippers have agreed to arbitrate in advance on a binding and compulsory basis under the rules are listed and defined within the rules themselves. They apply to a wide range of grain and feed-related products covered in a broad list of more than 68 agricultural products – from ethanol and biodiesel to corn, wheat and oilseeds, and from bird seed to distillers dried grains with solubles, etc. They also cover a wide range of types of disputes, such as issues concerning loss-and-damage claims; bills of lading; demurrage terms; interpretation of contracts and mishandling of private cars.
- The case experience has been manageable and demonstrated success as a means for dispute-resolution: The caseload has not been voluminous – it did not result in an opening of the flood gates as some may have expected at the outset. It’s a selective process. In the early years, on average only one or two cases a year went through the entire process to a committee decision. Still more cases were filed, but then quickly were resolved by the parties before reaching the decision stage. More importantly, NGFA has been informed that many other disputes are resolved between railroads and shippers that never are filed simply because the access provided under the rules and process available through NGFA Rail Arbitration facilitate direct one-on-one business resolution. Over the years, as familiarity and trust in the system has grown, cases are even more likely to be resolved before reaching the decision stage, and, again (as NGFA members have conveyed), many more disputes are resolved between the parties and never filed, simply because the process encourages the parties to engage in one-on-one business discussions.
- The fairness and integrity of the process is respected by carriers and rail users alike: The Rail Arbitration Rules, which govern the process as a supplement to the standard NGFA Arbitration Rules, are set and maintained by a special committee – the NGFA Rail Arbitration Rules Committee – which specifically consists of exactly half representatives from railroads and half from shippers. The committee historically has been chaired by a railroad representative. The committee remains active and in recent years has expanded the list of commodities that are arbitrable, increased the claim amount threshold, and even expanded the size of the committee for greater participation by the industry. As with all NGFA Arbitration cases, the arbitration panels assigned to cases consist of three persons from the industry with specific experience related to the matters in dispute. In Rail Arbitration cases, the panels historically have consisted of members from two railroads and one shipper, or vice versa. Each case that has gone through the decision stage has been decided unanimously. Whether the panel had a majority of arbitrators from railroad or shipper companies has not affected which “side” prevailed.
Rail Mediation Service: Concurrent with the adoption of the Rail Arbitration System, NGFA also implemented with the AAR and Class I railroads a unique and confidential Rail Mediation Service that took effect Oct. 1, 1998. Signatory railroads to the mediation rules agreed to mediate certain rate issues with NGFA member companies, unless they expressly withdrew.
Specifically covered under rail mediation are disputes involving allegations:
- of unreasonable discrimination by a rail carrier as to rates charged to a shipper or receiver for rail transportation; and
- that switching rates, rules or practices of carriers “unreasonably bar access of a rail shipper or receiver to markets.”
The confidentiality process imbedded in the rules include the following:
- The mediation and any statements made during the mediation process are treated as confidential;
- All statements made during mediation are privileged against use in any other proceeding relating to the dispute, even in cross-examination;
- Notes taken by any person in the mediation must be destroyed at the conclusion of the mediation process, except for the notes of any final agreement reached between the parties; and
- Any person serving as a mediator cannot be called as a witness or otherwise be involved in any subsequent ongoing arbitration or litigation if the mediation does not result in a settlement.
The Rail Mediation Rules also contain procedures for initiating the process, selecting mediators, costs and other matters. NGFA’s Rail Mediation Service is distinct from the Rail Arbitration System, and also may be worthy of consideration if rail customers and their carriers are seeking to resolve specific disputes in a strictly confidential setting.
NGFA notes that to date, shippers in a range of industries struggle to find meaningful and cost-effective dispute-resolution for rail-related disputes through the courts, the STB or other means. It’s clear that NGFA Rail Arbitration and Mediation continue to provide a unique and invaluable service for the grain and feed-related sectors.