Calif. High Court: U.S. Rail Law Doesn't Categorically Pre-empt CEQA on Public Entity Projects

HIGHLIGHTS:

• In Friends of the Eel River v. N. Coast R.R. Auth., __ Cal.5th __, No. S222472, 2017 WL 3185220 (Cal. July 27, 2017), the Supreme Court of California held that federal law does not categorically pre-empt the California Environmental Quality Act (CEQA) from applying to railroad projects owned by state or local government entities.
• Project proponents who operate in areas in which CEQA is generally pre-empted should conduct a careful review of the government's ownership interest in their projects to determine if CEQA nonetheless applies.
• The decision acknowledged that challengers may not be able to make use of all of CEQA's remedies to challenge railroad projects. The decision may also set up a showdown before the U.S. Supreme Court about whether federal law trumps California's environmental statutes.

The California Environmental Quality Act (CEQA), Cal. Pub. Res. Code §21000 et seq., imposes significant procedural and substantive requirements on private and public projects throughout the state. However, even a state law as broad as CEQA is limited by federal law. In particular, the ICC Termination Act of 1995 (ICCTA), Pub.L. No. 104-88 (Dec. 29, 1995) 109 Stat. 803, which abolished the Interstate Commerce Commission, gives the federal Surface Transportation Board (STB) exclusive jurisdiction to regulate the rail industry and generally pre-empts state laws such as CEQA from imposing environmental preclearance requirements on private railway operations.

Rail opponents, however, have argued that CEQA does apply to railroad projects operated by California public entities. Specifically, opponents of a project that would resume rail freight service between Napa and Mendocino counties argued that CEQA should apply because the railroad is owned by a state public entity, the North Coast Railroad Authority. California's First District Court of Appeal rejected this claim, holding that, regardless of whether a public entity owns the railroad, "CEQA is preempted by federal law when the project to be approved involves railroad operations." Friends of the Eel River v. N. Coast R.R. Auth., 178 Cal. Rptr. 3d 752, 773 (2014).

The First District's decision in Eel River conflicted with a prior decision by the Third District Court of Appeal, which held that CEQA did apply to the California High-Speed Rail Authority's decision to approve a route for the state-owned, high-speed rail project. Town of Atherton v. Calif. High-Speed Rail Authority, 228 Cal.App.4th 314, 334 (2014). To resolve this split of authority, the California Supreme Court granted review of the Eel River case.

Supreme Court of California Decision

In an 6-1 opinion authored by Chief Justice Tani Cantil-Sakauye, the Supreme Court of California in Eel River held that CEQA is not categorically pre-empted as applied to a railway that is "owned by the state" or its subdivisions, Friends of the Eel River v. N. Coast R.R. Auth., __ Cal.5th __, No. S222472, 2017 WL 3185220, at *33 (Cal. July 27, 2017). The court acknowledged that the ICCTA generally pre-empts any state or local regulation of rail operations, and would prevent any public entity from imposing any "environmental preclearance requirements on a privately owned railroad that prevented the railroad from operating." Id. at *1. However, the Court held that California is not acting as a regulator when it sets rules to govern its own property. The court reasoned that although the ICCTA generally frees a private rail operator from being subject to state or local regulation, a private rail operator is free to set its own rules for how to run its railroad and could, for example, voluntarily impose environmental requirements on its own operations without violating the ICCTA. Here, the Court held that the California Legislature has decided to impose CEQA's requirements on the state of California and its subdivisions as a matter of internal self-governance, and so the ICCTA does not categorically pre-empt CEQA from applying to the operations of a state-owned railway.

For project proponents operating in an area in which CEQA is generally pre-empted, the Eel River decision may require proponents to conduct a careful review of their relationship with state and local public entities. Many projects, especially transportation and other infrastructure projects in generally pre-empted fields, such as rail or maritime projects, involve public-private partnerships in which a private party operates as a concessionaire or franchisee of a public entity. Under Eel River, CEQA's reach will depend upon the extent to which the state or a state subdivision has a relevant property interest that would render CEQA's application an act of self-governance rather than regulation.

Although the Court held that the ICCTA does not "categorically" pre-empt CEQA from applying to the state and its subdivisions, the court recognized that CEQA may not operate at its full strength while operating in the shadow of the ICCTA's potentially preclusive effect. Specifically, the Court held that the challengers could not use CEQA to directly enjoin Northwestern Pacific Railroad Co., the private freight operator, from conducting its freight operations because this "would not involve simply the state's autonomy and control over its subdivisions, but would constitute use of state law to restrict operations by a private rail carrier — a classic example of state regulation." Id. at *33. The opinion also acknowledged that other CEQA remedies might also be pre-empted to the extent that they impose "unreasonable burdens," and Justice Leondra Kruger wrote a separate concurrence to emphasize that CEQA remedies that "unreasonably interfere[] with the jurisdiction of the [STB]" might also be unavailable, even against public entities. Id. at *29, 35. Therefore, it remains to be seen whether rail opponents can successfully use the Eel River decision to halt or delay high-speed rail or any other rail projects.

U.S. Supreme Court May Ultimately Decide

Perhaps most interestingly, the Eel River decision sets up a looming showdown with the federal government. As the majority opinion and Justice Carol Corrigan's dissent both emphasize, Eel River directly conflicts with the federal STB's own determination about its jurisdiction. Id. at *30, 36. The STB has concluded specifically that the ICCTA pre-empts any application of CEQA to California's state-owned, high-speed rail project. California High-Speed Rail Authority - Petition for Declaratory Order, FD 35861, 2014 WL 7149612, at *7 (Dec. 12, 2014). A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit recently denied rail opponents' petition for review of the STB's decision (Kings Cty v. Surface Transportation Bd., No. 15-71780, 2017 WL 3278918, at *1 (9th Cir. Aug. 2, 2017), unpublished), and so the dispute over CEQA's application to High-Speed Rail may need to be resolved by the only court with the authority to issue an opinion binding on the California Supreme Court: the U.S. Supreme Court.

As it happens, the nation's high court has signaled an interest in the California Supreme Court's holdings about federal pre-emption of California environmental laws. In May, the court invited the Trump Administration to share its views about whether the court should review the California Supreme Court's ruling that the state's prohibition of suction dredge mining in California streambeds is not pre-empted by the federal Mining Law of 1872. Rinehart v. California, 137 S. Ct. 2149 (May 15, 2017).

Ironically, the Trump Administration and the U.S. Supreme Court could be the only ones who can stop opponents from using California's own environmental laws to derail a high-speed rail transportation project that Gov. Jerry Brown has described as essential to meeting the state's greenhouse gas reduction goals.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.