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