Tag: federal preemption

Fifth District Court of Appeal Approves of Oil Refinery EIR’s Use of Cap-and-Trade Program to Mitigate GHG Emissions, But Disapproves of Kern County’s Reliance on Federal Preemption in Failing to Analyze Off-Site Rail Activities

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On November 21, 2017, the Fifth District partially published its decision in Association of Irritated Residents v. Kern County Board of Supervisors (2017) 17 Cal.App.5th 708. The published sections covered arguments about the baseline used for the oil refinery modification project, the mitigation of greenhouse gas (GHG) emissions, and the extent to which federal preemption precludes aspects of CEQA review of project impacts. In reversing the trial court’s judgment denying the petition for writ of mandate, the Court of Appeal upheld the EIR’s treatment of the project baseline and GHG emissions but determined that the county erred in relying on federal preemption to avoid analyzing and mitigating impacts from off-site rail activities.

The project involved modifications proposed by Alon USA to an existing petroleum refinery northwest of the City of Bakersfield. The refinery had undergone several ownership changes since 1932, with Alon USA purchasing it from Flying J and its subsidiary during the latter’s 2008 bankruptcy proceedings. Alon USA sought to expand existing rail, transfer and storage facilities, including the construction of a double rail loop connected to the BNSF railway. The expanded train facilities would allow the transport of crude oil from the Bakken formation in North Dakota to the refinery for processing. The Association of Irritated Residents, Center for Biological Diversity, and Sierra Club filed suit after the County certified an EIR and approved the project.

First, the court dealt with plaintiffs’ arguments about the use of year 2007 as the baseline for air pollution emissions instead of using year 2013 – the year that the County published the notice of preparation. In discussing Neighbors for Smart Rail v. Exposition Metro Line Const. Authority (2013) 57 Cal.4th 439, 457 (“Neighbors”), the court established that it was interpreting Neighbors to only require heightened scrutiny of baselines that use hypothetical future conditions and not of those that use data from past, fluctuating conditions. Based on this interpretation, the court found no error in the County’s use of data from year 2007 because substantial evidence supported this deviation from the “normal” baseline. The court concluded that it was reasonable to include an operating refinery in the baseline because: (a) existing permits and entitlements allow for the processing of up to 70,000 barrels per day; (b) Flying J’s bankruptcy filing in 2008 only temporarily halted processing of hydrocarbons; (c) refinery operations have been subject to prior CEQA review; and (d) the processing of crude oil could begin again without the currently proposed project. The court then turned to whether the County’s choice of year 2007 was supported by substantial evidence, and found that it was because 2007 was the last full year of refinery operations, and was not some hypothetical, maximum authorized amount. The court even included its own calculations of the average barrels per day for the period of 2001 through 2008 to show that the year-2007 figure of 60,389 barrels-per-day was less than the average of 60,994 barrels-per-day.

Second, the court addressed GHG emissions arguments. The court started by analyzing under the de novo review standard a question of first impression: can the volume of a project’s estimated GHG emissions be decreased to reflect the use of allowances and offset credits under the state’s cap-and-trade program? The court concluded that this use of the cap-and-trade program did not violate CEQA because Section 15064.4, subd. (b)(3), effectively directed the County to consider the project’s compliance with the state’s cap-and-trade program as a “regulation[] or requirement[] adopted to implement a statewide . . . plan for the reduction of mitigation of greenhouse gas emissions.” And the court concluded that the project’s compliance with the cap-and-trade program could be part of the substantial evidence supporting a finding of less-than-significant impacts from GHG emissions even though surrender of allowances would not result in the project emitting fewer GHG molecules than if the allowance had not been surrendered. The court explained that the cap-and-trade program was designed so that the “limited allocation and use of allowances means they are not available for use elsewhere” in the state.

In the final published section, the court dealt with federal preemption and off-site rail impacts. Claiming that the Interstate Commerce Commission Termination Act of 1995 (ICCTA) preempted CEQA review, the County had excluded analysis of some of the impacts from off-site main line rail operations that will deliver crude oil to the refinery. The court disagreed. Interpreting the California Supreme Court’s direction in Friends of Eel River v. North Coast Railroad Authority (2017) 3 Cal.5th 677, 722, the court of appeal concluded that the development of information pursuant to CEQA is not categorically preempted but may be preempted on an as-applied basis. Then, as an alternative to that broad legal conclusion, the court considered whether categorical preemption applied to the specific circumstances in this case. It concluded that no categorical preemption applied because analysis of indirect environmental effects “would impose no permitting or preclearance by a state or local agency upon the delivery of crude oil to the project site by a rail carrier,” and “would not control or influence matters directly regulated under federal law.” The court also concluded that there was no as-applied preemption because the environmental analysis of off-site rail activities “would not prevent, burden, or interfere with BNSF Railway’s operation.” Finally, the court directed the County on remand to use the tests stated in this opinion to determine whether particular mitigation measures may be preempted by the ICCTA.

 

 

California Supreme Court Holds that State Agency Compliance with CEQA is Not Preempted By the ICCTA

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In Friends of the Eel River v. North Coast Railroad Authority (2017) 3 Cal.5th 677, the California Supreme Court held that the Interstate Commerce Commission Termination Act (ICCTA) does not preempt CEQA when a California public agency decides to undertake a new railroad project, even if the state agency later authorizes a private entity to operate the new rail line. The Court therefore concluded that the North Coast Railroad Authority (NCRA) was required to comply with CEQA prior to taking steps to reinitiate rail service on a segment of an interstate rail line that had gone out of operation for many years. The Court declined, however, to enjoin the ongoing operations of the railroad by NWPCo, the private operator. Because these operations had been occurring during the course of the litigation against NCRA, any such injunction would intrude into an area of activity that is preempted by the ICCTA, namely, private railroad operations.

The NCRA is a state agency created in 1989 for the purpose of resuming railroad freight service along a previously-abandoned route through Napa and Humboldt Counties. The northern portion of the line runs along the Eel River, while the southern portion, at issue in the case, runs along the Russian River.  In 2000, the Legislature authorized funding for NCRA’s program, with the express condition of CEQA compliance. NCRA subsequently contracted with NWPCo, a private company, to run the railroad. As part of the lease agreement between the two entities, NWPCo agreed that CEQA compliance by NCRA was a precondition to resumed operation. Accordingly, in 2007, NCRA issued a notice of preparation, and in June 2011, it certified a Final EIR. In July 2011, petitioners sued, challenging the adequacy of the EIR on a number of grounds. Concurrently, NWPCo commenced limited freight service along the Russian River. In 2013, NCRA took the unusual step of rescinding its certification of the Final EIR, asserting in explanation as follows: that ICCTA preempted California environmental laws; that the reinitiation of rail service was not a “project” under CEQA; and that the EIR NCRA had prepared had not been legally required. Although NCRA successfully removed the case to federal court, the case subsequently sent back to state court for a resolution of both the state CEQA claims and NCRA’s ICCTA preemption defense. The Court of Appeal sided with NCRA, finding that ICCTA was broadly preemptive of CEQA. The Supreme Court granted review.

Federal preemption is based on the Supremacy Clause of the United States Constitution, which provides that federal law is the supreme law of the land. Preemption can occur expressly, through the plain words of a federal statute, or can be implied, as when a court discerns that Congress intends to occupy an entire field of regulation, or when a court concludes that a state law conflicts with a federal purpose or the means of achieving that purpose. A federal statute can be preemptive on its face or as applied. There is a presumption against preemption, particularly in areas traditionally regulated by the states, which can only be overcome by a clear expression of intent (the Nixon/Gregory rule). The market participant doctrine is a related concept and holds that a public agency has all the freedoms and restrictions of a private party when it engages in the market (provided that the state does not use tools that are unavailable to private actors). The courts presume that Congress did not intend to reach into and preempt such proprietary marketplace arrangements, absent clear evidence of such expansive intent.

The Court began by recognizing that ICCTA does preempt state environmental laws, including CEQA, that interfere with private railroad operations authorized by the federal government. ICCTA contains an express preemption clause giving the federal Surface Transportation Board (STB) jurisdiction over railroad transportation (including operation, construction, acquisition, and abandonment). ICCTA’s purpose was both unifying (to create national standards) and deregulatory (to minimize state and federal barriers). Although ICCTA is a form of economic regulation, state environmental laws are also economic in nature when they facially, or as applied, dictate where or how a railroad can operate in light of environmental concerns. Such state laws act impermissibly as “environmental preclearance statutes.” These legal principles, however, did not extend to the actions of NCRA in this case. Just as a private railroad company may make operational decisions based on internal policies and procedures, and may even modify its operations voluntarily in order to reduce environmental risks and effects, so too may a state, in determining whether to create a new railroad line, subject itself to its own internal requirements aimed at environmental concerns. In the latter context, though, a state operates through laws and regulations, as opposed to purely private policies. When a state acts in such a manner, its laws and regulations are a form of self-governance, and are not regulatory in character. CEQA is an example of such an internal guideline that governs the process by which a state, through its subdivisions, may develop and approve projects that affect the environment. Viewed in this context, CEQA is part of state self-governance, and is not a regulation of private activity.

Although the market participant doctrine does not directly apply, being mainly applicable in Commerce Clause jurisprudence, the doctrine supports by analogy the view that that California was not acting in a regulatory capacity in this case. CEQA is analogous to private company bylaws and guidance to which corporations voluntarily subject themselves. By imposing CEQA requirements on the NCRA, the state was not “regulating” any private entity, but rather was simply requiring that NCRA, as one of its subdivisions, conduct environmental review prior to making a policy decision to recommence the operation of an abandoned rail line. If Congress had intended to preempt the ability of states to govern themselves in such a fashion, any such intention should have been clear and unequivocal. The Court found no such intent in the ICCTA.

The Court’s remedy, however, was cognizant of the narrowness of its holding. The Court concluded that, because NWPCo is currently operating the line, the California Judiciary could not enjoin that private entity’s operations even if, on remand, the lower state courts found problems with NCRA’s CEQA documentation. An injunction under CEQA against NWPCo would act as a regulation, by having the state dictate the actions to private railroad operator. Such action would go beyond the state controlling its own operations.

James G. Moose & Sara Dudley

Surface Transportation Board rules that federal law preempts application of CEQA to a portion of the high-speed rail line.

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The Surface Transportation Board (STB) issued a ruling on December 12, 2014, concluding that 49 U.S.C. § 10501(b) preempts application of CEQA to the Fresno to Bakersfield segment of the state high-speed rail project. Under this statute, STB’s jurisdiction over transportation by rail carriers is exclusive, even if the tracks are located entirely in one state. Furthermore, the remedies provided with respect to regulation of rail transportation “are exclusive and preempt the remedies provided under Federal or State law.”

The issue before STB was whether a state court can, under CEQA, enjoin construction of a rail line that the Board has authorized. In 2013, STB found it had jurisdiction over the High Speed Train system. It subsequently granted petitions for exemption that permitted construction of the first segment of the rail line, between Merced and Fresno. After STB’s assertion of jurisdiction, the High Speed Rail Authority noted in its environmental documentation that it was not waiving the right to assert federal preemption in response to any potential legal challenge to its CEQA compliance.

STB stated that due to the conflicting appellate court opinions regarding CEQA preemption presented in the recent Town of Atherton and Friends of Eel River state appellate court decisions, the Board was uniquely qualified to resolve the preemption question. STB first determined that state permitting or preclearance requirements, such as CEQA, were categorically preempted as to any rail lines and facilities that are an integral part of rail transportation. STB found it difficult, as a practical matter, to separate CEQA’s injunctive remedies—the focus of opponents’ lawsuits—from a state court’s ability to enforce compliance with CEQA itself. Thus, the issue became whether CEQA as a whole is preempted with regard to the line. Applying “well-established preemption principles,” the Board concluded that it was.

STB noted that the line would be constructed and operated as part of the interstate rail network. Any implied agreement to comply with CEQA that potentially could have the effect of prohibiting the construction of a rail line authorized by the Board, therefore, would unreasonably interfere with interstate commerce by conflicting with the Board’s exclusive jurisdiction and preventing the Authority from exercising its power.

The Board noted that to the extent its preemption analysis conflicted with the court’s decision in Atherton, it respectfully disagreed with that opinion. STB did not believe that the market participant doctrine creates an exception to federal preemption in the context of a CEQA enforcement suit for a railroad project under the Board’s jurisdiction. The Board agreed with Eel River’s reasoning that even if a state agency’s action can be viewed as proprietary and the initial decision to prepare the EIR a component of that proprietary action, a writ proceeding by a private citizen’s group challenging the adequacy of the CEQA review is not part of that proprietary action. This is because the aspect of CEQA that allows a citizen’s group to challenge the adequacy of an EIR when CEQA compliance is required is regulatory in nature; a lawsuit against a government entity cannot be viewed as part of its proprietary action, even if the lawsuit challenges that proprietary action. This holding, the Board stated, does not infringe upon state sovereignty because the CEQA enforcement actions are not being brought by the state. It also held that whether Proposition 1A requires the Authority to comply with CEQA as a condition of its funding is a question of state law for a state court to decide. One commissioner dissented, arguing that the majority had gone further with its preemption holding than the Authority had requested.

The Supreme Court has granted review of Friends of Eel River. Briefing is currently set for the end of February 2015.

Petition for Review Filed in Friends of the Eel River v. North Coast Railroad Authority (Case No. S222472)

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Plaintiffs Friends of the Eel River and Californians for Alternatives to Toxics are currently seeking California Supreme Court review of the First District Court of Appeal’s recent opinion in Friends of the Eel River v. North Coast Railroad Authority (2014) 230 Cal.App.4th 85. Plaintiffs filed their petition for review with the Supreme Court on November 7, 2014. In Friends of the Eel River v. North Coast Railroad Authority, the First District upheld the trial court’s decision rejecting plaintiffs’ challenge to North Coast Railroad Authority’s certification of an EIR. The appellate court found that the federal Interstate Commerce Commission Termination Act preempted the local agency’s CEQA review of rail operations, which fell within the exclusive jurisdiction of the federal Surface Transportation Board. The court also held that the rail line’s previous agreement with Caltrans to prepare an EIR for the project did not estop the line from later asserting preemption. At the earliest, the Supreme Court is expected to decide whether to grant certification by early January 2015.