Petition for Review Granted

December 10, 2014

Current Status

Fully briefed by the parties as of April 30, 2015.

Amicus briefing in progress.

Court’s Statement of Issues Presented

The court will consider two issues:

1. Does the Interstate Commerce Commission Termination Act (ICCTA) (49 U.S.C. § 10101 et seq.) preempt the application of the California Environmental Quality Act (CEQA) (Pub. Res. Code, § 21050 et seq.) to a state agency’s proprietary acts with respect to a state-owned and funded rail line or is CEQA not preempted in such circumstances under the market participant doctrine (see Town of Atherton v. California High Speed Rail Authority (2014) 228 Cal.App.4th 314)?
2. Does the ICCTA preempt a state agency’s voluntary commitments to comply with CEQA as a condition of receiving state funds for a state-owned rail line and/or leasing state-owned property?

Summary of the Parties’ Arguments

Plaintiffs and Appellants, Friends of the Eel River, et al. (Friends) argue that the ICCTA does not preempt the North Coast Railroad Authority’s (NCRA) actions. Friends argue that in enacting the ICCTA, Congress did not expressly or impliedly preempt any state laws. Rather, they argue, ICCTA only prohibits states from regulating rail transportation, thus furthering the ICCTA’s purpose of deregulating the railroad industry and centralizing the economic regulation of rail transportation. Friends argue that three doctrines defeat federal preemption. First, courts are to construe federal preemption statutes to preserve states’ plenary control over their subdivisions absent an “unmistakably clear” statement that Congress intended to intrude on that sovereign function. Here, California’s Legislature exercised its sovereign power over public agencies, such as NCRA, to conduct CEQA review before carrying out a project. Second, under the market participant doctrine, courts should not infer federal preemption of a state’s proprietary non-regulatory actions. In this matter, California’s requirement of CEQA compliance and enforcement are a proprietary component of an internal business decision involving state funding and the management of state-owned property. Third, Friends argue that federal law does not preempt an entity’s voluntary commitments because self-imposed obligations are not considered regulatory. Here, CEQA was self-imposed and not preempted.

Defendants and Respondents, NCRA, et al. (NCRA) counter that consistent with ICCTA’s plain language, legislative history, and the interpretation of that language by other courts and the Federal Surface Transportation Board (STB), the ICCTA preempts CEQA’s application. NCRA argues that Friends fails to lay out the relevant facts, including the fact that Friends seeks to use CEQA as a state permitting or preclearance law to shut down a privately operated railroad that is currently transporting goods in interstate commerce. NCRA argues that applying CEQA would delay or deny NCRA the ability to conduct its activities, thus interfering with the STB’s jurisdiction, and with the maintenance and operation of rail transportation. NCRA further argues the ICCTA’s preemption of CEQA is not defeated by the market participation doctrine. First, this doctrine does not work as an exception to an express preemption, and second CEQA is regulatory, as it requires public agencies to comply when it chooses to undertake a project; NCRA explains that CEQA “is not narrowly focused on market-oriented actions.” Finally, NCRA argues that their voluntary agreement is not binding and that they did not agree to waive the ICCTA preemption. Rather, the NCRA “mistakenly, but in good faith, believe[d] that it needed to complete” an EIR for resumed rail operations, but had since determined that the ICCTA expressly preempted application of CEQA to the project.

Parties/Counsel

Plaintiffs and Appellants:

• Friends of the Eel River, Represented by Shute Mihaly & Weinberger
• Californians for Alternatives to Toxics, Represented by Law Offices of Sharon E. Duggan, Klamath Environmental Law Center, Environmental Law and Justice Clinic at Golden Gate University School of Law, Environmental Law Clinic and Mills Legal Clinic at Stanford Law School, Klamath Environmental Law Center

Defendants and Respondents:

• North Coast Railroad Authority, Represented by North Coast Railroad Authority and Cox Castle and Nicholson LLP
• Board of Directors of North Coast Railroad Authority, Represented by Christopher J. Neary

Real Party in Interest and Respondent:

• Real Party in Interest and Respondent Northwestern Pacific Railroad Company, Represented by Cox, Castle & Nicholson

Procedural History

Two environmental groups, Friends of the Eel River and Californians for Alternatives to Toxics, filed petitions for writ of mandate under CEQA to challenge the certification of an EIR and approval of a railroad company’s freight operations by NCRA.  The trial court denied the petitions for writ of mandate, holding that CEQA review was preempted by the ICCTA, and that NCRA and the railroad company were not estopped from claiming federal preemption.

The First District Court of Appeal affirmed the judgement, holding that the ICCTA expressly preempted CEQA review of proposed railroad operations, and that the environmental groups’ CEQA claims fell within that preemption.  The appellate court additionally explained that the market participation doctrine found in Town of Atherton v. California High Speed Rail Authority (2014) 228 Cal.App.4th 314, could not be used to avoid such federal preemption.   In Town of Atherton, the California High Speed Rail Authority was taking proprietary actions in the market, acting as an owner of the property and not as a regulator; therefore, the market participation exception to preemption applied.  In contrast, NCRA acts in a regulatory capacity, thus the exception to preemption does not apply.  Lastly, the appellate court explained that while NCRA entered into an agreement with Caltrans, where it volunteered to comply with CEQA, the preemption analysis remains the same.  NCRA’s alleged voluntary agreement to comply with CEQA arose from its contract with the state (CalTrans), not from its acceptance of funds from a bond measure.  The agreement between these two parties does not unambiguously require environmental review for railroad operations where CEQA is preempted and the environmental groups do not have standing to enforce this contract.

Amicus Curiae Briefs – Briefing in Process, Check Back for Updates

• South Coast Air Quality Management District, Bay Area Air Quality Management District, in support of Appellants;
• Madera County Farm Bureau, Merced County Farm Bureau, in support of Appellants;
• Town of Atherton, California Rail Foundation, Transportation Solutions Defense and Education Fund, Community Coalition on High-Speed Rail, Patricia Hogan-Giorni, in support of Appellants;
• Sierra Club, Coalition for Clean Air, Natural Resources Defense Council, Planning and Conservation League, Communities for a Better Environment, in support of Appellants;
• Center for Biological Diversity, in support of Appellants;
• California Environmental Protection Agency, the California Natural Resources Agency, and their Departments and Boards in support of no party; and
• California High Speed Rail Authority, in support of Respondents.

Case Implications

This case would have implications on federal preemption of CEQA under the ICCTA, as well as the market participant exception to preemption.

Regarding “preemption”:

• The appellate court stated that whether the ICCTA generally preempts CEQA’s application to a project involving railroad operations is a pure question of law subject to de novo review.   If the California Supreme Court affirms the appellate court’s ruling, this would affirm the federal preemption of the ICCTA.

Regarding “market participant exception to preemption”:

• In Town of Atherton, the market participant exception to preemption required the California High Speed Rail Authority (Authority) to comply with CEQA for a portion of the rail line.       This exception applied because the court found the Authority was acting in its capacity as the owner of property, not as a regulator. The Supreme Court may take this opportunity to restrict or expand the market participant exception set forth in Town of Atherton.

Key Cases that May be Affected by the Court’s Ruling

• Town of Atherton v. California High Speed Rail Authority (2014) 228 Cal.App.4th 314;  The Court applied the market participant exception to the California High Speed Rail Authority because it was taking proprietary market actions, rather than acting in its regulatory capacity. Thus, the California High Speed Rail Authority was required to comply with CEQA for a portion of the rail line.
• People v. Burlington N. Santa Fe R.R. (2012) 209 Cal.App.4th 1513; The Court held the ICCTA provides the STB exclusive jurisdiction with respect to the regulation of rail transportation. Thus a PUC general order issued to regulate the time a stopped train can occupy a public rail crossing is preempted by ICCTA, as it attempts to directly manage railroad operations.