The North Coast Railroad Authority (NCRA), a public agency established by state law, contracted with Northwestern Pacific Railroad Company (NWPRC) to allow NWPRC to conduct freight services on tracks controlled by NCRA.  Petitioner groups Friends of The Eel River (FOER) and Californians for Alternatives to Toxics (CAT) filed mandate petitions under CEQA challenging NCRA’s EIR and approval of the operations.  In affirming the trial court’s judgment denying the petitions, the First District Court of Appeal – in addressing what it termed “an issue of first impression in California” — followed uniform Federal law in holding the Interstate Commerce Commission Termination Act (ICCTA; 49 U.S.C. § 10101 et. seq.) grants the Surface Transportation Board (STB) exclusive jurisdiction over rail operations and broadly exempts state and local laws that impose “permitting or preclearance requirements (including environmental requirements)” on railroad operations or activities.  Friends of the Eel River v. North Coast Railroad Authority (1st Dist., Div. 5, 2014) ___Cal.App.4th ___, 2014 WL 4809456 (opn. filed 9/29/14).  In so holding that the ICCTA preempted CEQA’s application to a project involving railroad operations and thus barred Petitioners’ actions, the Court rejected Petitioners’ arguments that NCRA and NWPRC were estopped to assert federal preemption as a defense by NCRA’s agreement to conduct CEQA review, their positions in prior proceedings, and/or NCRA’s (later-rescinded) certification of an EIR.

The Court also rejected Petitioners’ attempted reliance on the market participation doctrine as an exception to preemption, and in doing so it disagreed with the reasoning of and distinguished a recent Third District decision on that subject, Town of Atherton v. California High-Speed Rail Authority (2014) 228 Cal.App.4th 314 (“Atherton”).  (For an analysis of the Third District’s Atherton decision, seeOf High Speed Rails and Litigation Snails:  The Train Rolls On As Third District Rejects Additional CEQA Challenges To High-Speed Rail Authority’s Revised Final Program EIR Analyzing Central Valley To San Francisco Bay Area Track Route,” by Arthur F. Coon, posted 8/4/14.)

Before reaching the merits of Respondents’ and Real Party’s federal preemption arguments, the Court held the case was not rendered moot due to NCRA’s rescission of its resolution certifying the EIR it “voluntarily” prepared as unnecessary, and the commencement of operation of the railroad line at issue.  The Project NCRA approved had not been abandoned, and the mootness argument assumed CEQA was preempted by federal law – a conclusion with which the Court ultimately agreed, but which it found required an analysis that was not obviated by mootness since “[i]f…CEQA were not preempted, we would surely be empowered to grant the petitioners relief.”

Turning to the merits, key “takeaways” from the First District’s opinion include:

  • “The ICCTA grants the STB [exclusive] jurisdiction over rail operations, whether or not they take place entirely within a single state” and remedies under the ICCTA “are [also] exclusive and preempt the remedies provided under [other] [f]ederal or [state] law.”  (Quoting 49 U.S.C. § 10501(b).)
  • Preemption gives force to the Supremacy Clause, and comes in three types: (1) express, (2) conflict, and (3) field preemption.  There is no presumption against preemption where, as here, an area such as rail transportation has a history of significant federal regulatory presence.
  • The ICCTA has a “broadly-worded express preemption provision” (quoting People v. Burlington Northern Santa Fe Railroad (2012) 209 Cal.App.4th 1513, 1517) which covers rail carriers’ transportation; remedies with respect to rates, classifications, rules, practices, routes, services, and facilities; and construction, acquisitions, operation, abandonment, or discontinuance of all types of tracks and facilities.
  • Accordingly, the ICCTA preempts all state laws that reasonably may be “said to have the effect of managing or governing rail transportation” including – crucially – categorically preempting (1) “any form of permitting or preclearance [such as CEQA] that, by its nature, could be used to deny a railroad the opportunity to conduct operations or proceed with other activities the STB has authorized” and (2) “state or local regulation of matters directly regulated by the STB.”
  • While generally applicable state laws that have only a “remote or incidental effect on rail transportation” and do not unreasonably burden interstate commerce are not preempted, the Court held CEQA does not fall into that category of benign regulation.  It pointed out that the federal courts and the STB have uniformly rejected any distinctions between “economic” and “environmental” regulations in this respect, and have held that local power to impose environmental permitting regulations that could prevent a rail carrier “from constructing, acquiring, operating, abandoning, or discontinuing a line” are tantamount to economic regulation, and are preempted.  The First District found these authorities persuasive and applicable, stating:  “The authorities … conclude a state statute requiring environmental review as a condition to railroad operations is preempted by the ICCTA, and we have been directed to no federal appellate or STB decision reaching a contrary conclusion.”
  • CEQA was therefore preempted by the ICCTA, since “[a]n EIR’s disclosure of [significant environmental] effects could significantly delay or even halt a project in some circumstances, and in the context of railroad operations, CEQA is [therefore] not simply a health and safety regulation imposing an incidental burden on interstate commerce.”  Rather, as the trial judge “aptly noted”:  “CEQA mandates a time consuming review which may result in indefinite delays and unduly interfere with exclusive federal jurisdiction over rail transportation by giving state or local officials the ability to withhold approval for a [p]roject because the EIR and/or the lead agency’s findings fail to comply with one or more of the CEQA conditions.”
  • Turning to Petitioner’s contract-based arguments, the Court held that NCRA’s voluntary agreement with Caltrans to comply with CEQA as a condition of receiving Transportation Congestion Relief Program (TCRP) funds, and its statement in supplemental TCRP fund requests that it would be preparing an EIR, did not change the preemption analysis.  As non-signatory third parties, Petitioners had no standing to enforce the contract and never even alleged a cause of action for breach of contract; further, the contract at issue did not unambiguously contain a commitment by NCRA to prepare an EIR regarding the subject project, i.e., resumption of railroad operations on the Russian River Division.  Moreover, even if Petitioners were allowed to raise the issue, NCRA may well have satisfied the contract requirement since it did prepare and certify an EIR, even though it subsequently rescinded its certification resolution as legally unnecessary for it to proceed with the project.  In sum, (1) Petitioners never properly pursued a contract remedy, which would have been their sole avenue for relief if available (which it was not), (2) it was too late for them to amend to attempt to do so, and (3) preemption precluded them from proceeding directly under CEQA in a mandate action as a matter of law.
  • The Third District’s Atherton decision, which involved CEQA’s application to the High-Speed Rail Authority’s choice of where to locate a portion of the route for the High Speed Rail Project, did not decide whether the ICCTA preempted CEQA because it held the market preemption doctrine operated as an exception to preemption under the particular circumstances of that case.  It was also distinguishable because it dealt with whether CEQA analysis was required for the process of determining where to place a rail line, rather than as a condition of resuming operations over an existing rail line.  In any event, the First District — following its own extensive analysis of the issue — respectfully disagreed with the Third District’s analysis of the market participation doctrine as overlooking its genesis and purpose and failing to “adequately answer the question of how a third party’s challenge to an EIR under CEQA can reasonably be viewed as part of the government’s [non-preempted] proprietary activities.”  In the First District’s view of the matter:  “Petitioners seek to stand the market participation doctrine on its head and use it to avoid the preemptive effect of a federal statute the state entity is seeking to invoke….  The aspect of CEQA that allows a citizen’s group to challenge the adequacy of an EIR when CEQA compliance is required is clearly regulatory in nature, as a lawsuit against a governmental entity cannot be viewed as a part of its proprietary action, even if the lawsuit challenges that proprietary action.”
  • Finally, after careful analysis, the Court rejected Petitioners’ claims of judicial estoppel, finding the elements of that equitable doctrine were not met, essentially because NCRA or NWPRC never took materially-inconsistent positions that were relied on in a prior judicial or quasi-judicial proceeding.  In the course of this detailed analysis, the Court questioned whether one prior decision was correct in extending the doctrine of judicial estoppel to representations made to a county to obtain a permit, and cited to well-established CEQA case law holding that superfluous preparation of an EIR did not operate as an estoppel to a later claim that the project was entirely exempt from CEQA.

This case is a good reminder of the basic principle that federal law reigns supreme.  It preempts contrary state law – even one as important as and pervasive as CEQA – in areas where so authorized and intended by the U.S. Congress – such as the operation and construction of railroads.  As the First District explained (quoting from Fidelity Federal Sav. & Loan Assn. v. de la Cuesta (1982) 458 U.S. 141, 153):  “While CEQA serves a laudable and important purpose, “‘[t]he relative importance to the State of its own law is not material when there is a conflict with a valid federal law, for the Framers of our Constitution provided that the federal law must prevail.’””

Questions?  Please contact Arthur F. Coon of Miller Starr Regalia.  Miller Starr Regalia has had a well-established reputation as a leading real estate law firm for fifty years.  For nearly all that time, the firm also has written Miller & Starr, California Real Estate 3d, a 12-volume treatise on California real estate law.  “The Book” is the most widely used and judicially recognized real estate treatise in California and is cited by practicing attorneys and courts throughout the state.  The firm has expertise in all real property matters, including full-service litigation and dispute resolution services, transactions, acquisitions, dispositions, leasing, construction, management, title insurance, environmental law, and redevelopment and land use.  For more information, visit www.msrlegal.com.