November 20, 2014

Supreme Court to Address Important Business Regulation Question Next Month in Department of Transportation v. Association of American Railroads

Holland & Knight Regulatory Litigation Blog
Brian J. Goodrich

Next month, the U.S. Supreme Court will hear oral argument in Dep't of Transp. v. Ass'n of Am. Railroads, a case that may have major ramifications for businesses operating in the United States. This case concerns the limits of the non-delegation doctrine, which commands that Congress cannot cede its legislative powers to other entities. At issue is whether Congress may grant Amtrak, a private entity, the power to co-author regulations governing private freight railroads.

The case arises in the context of increased competition between freight and passenger trains for use of the same railroad tracks. In 1970, Congress passed the Rail Passenger Service Act of 1970, establishing the National Railroad Passenger Corporation ("Amtrak"), a private, for-profit corporation, as successor to private railroads that were abandoning unprofitable passenger rail service. The Act required that Amtrak trains be permitted to use private railroads' tracks and facilities at rates either agreed to, or set by, the Surface Transportation Board ("STB"). By statute, eight of Amtrak's nine directors are appointed by the President.

To improve Amtrak's service, § 207(a) of the Passenger Rail Investment Improvement Act of 2008, directed the Federal Railroad Administration ("FRA") and Amtrak to jointly…develop new or improve existing metrics and minimum standards for measuring the performance and service quality of intercity passenger train operations." 49 U.S.C. § 24101.Further, the Act provided that in the event of a disagreement over the standards and metrics, the parties may petition the STB to appoint an arbitrator to resolve the dispute through binding arbitration. 

The Association of American Railroads – an association representing large U.S. freight railroads – filed suit in the District Court for the District of Columbia, contending that § 207 violated the non-delegation doctrine and the separation of powers principle by placing legislative and rulemaking authority in the hands of a private entity (Amtrak) that participates in the very industry it is supposed to regulate. The Association further argued that § 207 permits a private arbitrator to draft and issue regulations if Amtrak and the FRA reach an impasse, thereby entirely excluding the government from the rulemaking process and reducing political accountability.

The District Court granted summary judgment in favor of the federal government. A panel of the U.S. Court of Appeals for the District of Columbia Circuit reversed. Ass'n of Am. Railroads v. U.S. Dep't of Transp., 721 F.3d 666 (D.C. Cir. 2013).  In its unanimous decision, the D.C. Circuit first held that Amtrak was a private entity, despite heavy government involvement in its management and organization. The court also found that, under § 207, the FRA was powerless to choose its own metrics and standards without Amtrak's permission, and concluded that Amtrak's participation in the approval process constitutes a power that cannot be delegated to a private entity. 

The main thrust of the Government's argument on appeal from that decision is that Amtrak is not a private entity, and that the federal government retains sufficient control over the development and application of future metrics and standards to avoid any violation of the non-delegation doctrine. In response, the Association of American Railroads argues that § 207 violates the non-delegation principle by vesting Amtrak – a private, for-profit corporation – and the FRA with co-equal rule-making power. The Association of American Railroads contends that the Constitution does not permit a private corporation to wield such power over the crafting of federal regulations, and then impose the regulations on others within the same industry.

As to the delegation of legislative powers, the Court also faces the potentially larger issue of the constitutionality of "hybrid" public/private entities created by the federal government – such as the Public Companies Accounting Oversight Board adopted in the Sarbanes Oxley Act. Further, the breadth of the potential impact of this decision is demonstrated by the interest expressed by the U.S. Chamber of Commerce through its amicus brief, in which the Chamber of Commerce expressed alarm over allowing industry standards to be set by private parties rather than by entities and processes over which government retains the final say.

Oral argument is scheduled for December 8, 2014.

Dep't of Transp. v. Ass'n of Am. Railroads, Case No. 13-1080 (S.Ct.)

Related Insights