Village of Barrington v. Surface Transportation Board

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 10, 2010 Decided March 15, 2011

No. 09-1002

VILLAGE OF BARRINGTON, ILLINOIS,

PETITIONER

v.

SURFACE TRANSPORTATION BOARD AND UNITED STATES OF

AMERICA,

RESPONDENTS

CANADIAN NATIONAL RAILWAY COMPANY, ET AL.,

INTERVENORS

Consolidated with 09-1028, 09-1048, 09-1049, 09-1073

On Petitions for Review of an Order

of the Surface Transportation Board

Kevin M. Sheys argued the cause for Community

Petitioners. With him on the briefs were Barry M. Hartman,

Edward R. Gower, Joel D. Bertocchi, and Richard H.

Streeter.

Paul A. Cunningham argued the cause for petitioners

Canadian National Railway Company and Grand Trunk

Corporation. With him on the briefs were David A. Hirsh and

Theodore K. Kalick.

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Evelyn G. Kitay, Associate General Counsel, Surface

Transportation Board, argued the cause for respondents. With

her on the brief were Mary Gabrielle Sprague, Robert B.

Nicholson, and John P. Fonte, Attorneys, U.S. Department of

Justice, Craig M. Keats, Acting General Counsel, Surface

Transportation Board, and Jeffrey D. Komarow, Theodore L.

Hunt, and J. Frederick Miller, Jr., Attorneys, Surface

Transportation Board. John C. Cruden, Assistant Attorney

General, U.S. Department of Justice, entered an appearance.

Kevin M. Sheys, Barry M. Hartman, and Richard H.

Streeter were on the joint brief of Community intervenors.

Paul A. Cunningham, David A. Hirsh and Theodore K.

Kalick were on the brief for intervenors Canadian National

Railway Company and Grand Trunk Corporation in support

of respondents.

Before: HENDERSON, TATEL, and GRIFFITH, Circuit

Judges.

Opinion for the court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: This case presents a difficult

question of statutory interpretation: in enacting the Staggers

Rail Act of 1980, did Congress deprive the Surface

Transportation Board of its authority to impose environmental

conditions when approving so-called minor mergers? For the

reasons set forth in this opinion, we conclude that it did not

and that the Board therefore retains its environmental

conditioning authority. We also conclude that in approving

the merger at issue in this case, the Board complied with the

National Environmental Policy Act and that the

environmental conditions it imposed are neither arbitrary nor

capricious.

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I.

CHICAGO

Hog Butcher for the World,

Tool Maker, Stacker of Wheat,

Player with Railroads and the Nation’s Freight Handler;

Stormy, husky, brawling,

City of the Big Shoulders.

Today, almost a century after Carl Sandburg’s paean to

America’s Second City, Chicago remains “the Nation’s

Freight Handler.” Chicago is the only city where all seven of

America’s Class I railroads—railroads with annual operating

revenues of $250 million or more—operate. Canadian Nat’l

Ry. Co.—Control—EJ&E W. Co., STB Finance Docket No.

35087, Final Environmental Impact Statement, at 1-3 (Dec. 5,

2008) (“FEIS”). Each day, 600 freight trains carrying

approximately 2.5 million tons of freight pass through

Chicago. Id. at 1-4. Converging in the Chicago Terminal

District—a 2,800 mile rail network containing 70 train yards

and terminals—these freight trains compete for track and yard

space with each other and with over 750 commuter trains and

78 Amtrak trains per day, which together serve over 84

million passengers a year. Id. The resulting congestion slows

freight traffic to a crawl. By one estimate, “[m]oving freight

across the Chicago region by rail . . . typically takes two days

or more, with train speeds averaging between 6.8 and 12

m.p.h.” Business Leaders for Transportation, Critical Cargo:

A Regional Freight Action Agenda 1 (Apr. 2002). Because

“[o]ne-third of all rail freight in the United States currently

moves to, from, or through Chicago,” FEIS at 1-4, the city’s

congestion affects the entire nation.

Petitioner Canadian National, a Class I railroad, operates

over twenty thousand miles of track in North America,

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connecting the Gulf Coast to its transcontinental rail network

in Canada. Id. at 1-6. Canadian National’s Chicago rail

system consists of five rail lines that converge on the city like

the spokes of a wheel from the north, west, southwest, south,

and southeast. Because Canadian National’s lines meet in the

heart of the Chicago Terminal District, even those trains that

merely pass through the city—about two-thirds of the

company’s Chicago trains—must contend with the city’s

congestion. Canadian National estimates that its freight trains

may take as long as 24 hours to move the thirty miles through

the metropolitan area. Id. at 1-4.

Looping around Chicago, the 120-mile Elgin, Joliet, &

Eastern main line, once known as the “J” line and referred to

throughout these proceedings as the EJ&E line, starts near the

Lake Michigan waterfront, north of Chicago in Waukegan,

Illinois, arcs south and west through the city’s suburbs

including Lake Bluff, Barrington, and Aurora, to Joliet,

Illinois, travels east to Gary, Indiana, and finally turns

northwest and travels along Lake Michigan towards Chicago.

Along the way, the EJ&E cuts across all five Canadian

National rail lines. This rail beltway has encircled Chicago

since the late nineteenth century when J.P. Morgan assembled

it to “avoid the Chicago bottleneck.” David M. Young, The

Iron Horse and the Windy City 115 (2005). Although daily

traffic along the EJ&E line peaked during World War II at as

many as fifty trains, the line has generally averaged between

ten and twenty trains, dropping by the mid-2000s to between

three and eighteen trains per day. Canadian Nat’l Ry. Co.—

Control—EJ&E W. Co., STB Finance Docket No. 35087,

Decision No. 16, at 5 (Dec. 24, 2008) (“Approval”); FEIS

app. A, at 391, 394.

Canadian National, anticipating that owning the EJ&E

line would enable it to avoid Chicago’s congestion, agreed to

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acquire the EJ&E Railway Company (a non–Class I railroad)

for $300 million on September 25, 2007. Using the EJ&E line

and its three rail yards, Canadian National planned to re-route

freight trains from its five Chicago lines around the

congestion that ensnarls the city’s Terminal District. The

effect on the EJ&E line and on Canadian National’s five

existing lines is expected to be significant. While freight

traffic will likely decline along Canadian National’s existing

tracks within the beltway, daily traffic on the EJ&E line will

rise to between twenty and forty-two trains, some almost as

long as two miles.

Before Canadian National could complete its acquisition

of the EJ&E Railway Company, it was required to obtain the

Surface Transportation Board’s approval, which it sought on

October 30, 2007. See 49 U.S.C. § 11323. Because the

acquisition involved only one Class I railroad, the Board

classified the transaction as a “minor” merger, meaning that it

needed to approve the transaction within 180 days unless it

found that the merger was likely to cause substantial

anticompetitive effects. See 49 U.S.C. §§ 11324(d), 11325(a),

(d). Finding that the substantial increase in freight traffic

along the EJ&E line resulting from this transaction would

“significantly affect[] the quality of the human environment,”

42 U.S.C. § 4332(2)(C), the Board also directed its Section of

Environmental Analysis (SEA) to prepare an environmental

impact statement. The Board explained that it would use the

environmental impact statement to decide whether to impose

“environmental mitigation conditions” if and when it

approved the transaction. Canadian Nat’l Ry. Co.—Control—

EJ&E W. Co., STB Finance Docket No. 35087, Decision No.

2, at 15 (Nov. 26, 2007).

In the course of preparing the final environmental impact

statement, SEA engaged in extensive public outreach, which

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included publishing notices in the Federal Register and ads in

local newspapers, holding twenty-two public meetings

attended by over 7200 people, consulting with local, state, and

federal agencies and officials, publishing for comment a 3500

page draft environmental impact statement, holding a sixty

day comment period on that draft, and receiving nearly

13,500 comments. Commenters raised concerns about the

effect of Canadian National’s acquisition on traffic

congestion, rail crossing safety, emergency response times,

hazardous material spills, and wildlife, among other issues.

Given that nearly 340,000 people live in close proximity

to the EJ&E line and that 73% of road crossings lack bridges

over the tracks, SEA considered how increased freight traffic

on the EJ&E line would worsen vehicle congestion and

increase the risk of collisions between trains and vehicles.

SEA winnowed the list of 112 railroad crossings along the

EJ&E line down to the 13 most “substantially affected”

crossings. For four of those crossings, SEA recommended

traffic advisory signals. But for the two “substantially

affected” crossings for which traffic delays and the threat of

collision were particularly serious, SEA recommended “grade

separation”—i.e., a bridge over the tracks.

After SEA completed the final environmental impact

statement, the Surface Transportation Board approved

Canadian National’s acquisition of the EJ&E Railway

Company on December 24, 2008—approximately four

hundred days after Canadian National first sought approval.

See Approval. The Board concluded “that the proposed

control transaction is unlikely to cause a substantial lessening

of competition or to create a monopoly or restraint of trade,”

id. at 13, and that “even if there were some modest

anticompetitive effect, it would be outweighed by the public

interest in meeting significant transportation needs,” id. at 15.

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The Board also responded to comments made during the

preparation of the environmental impact statement. Chief

among them was a memorandum Canadian National

submitted on September 30, 2008, the last day of the

comment period, which challenged the Board’s statutory

authority to impose environmental conditions on “minor”

transactions. According to the memorandum, 49 U.S.C.

§ 11324(d) (“subsection (d)”) (emphasis added), which

provides that “the Board shall approve” a “minor” merger

“unless [the Board] finds that” the merger is likely to cause

substantial anticompetitive effects, prohibits the Board from

imposing any conditions, including environmental conditions,

unrelated to competition. With this comment, Canadian

National totally reversed the position it had taken throughout

the Board’s review. For example, in comments to the Board

filed on November 21, 2007, the railroad acknowledged that

the Board could “impose environmental mitigation conditions

on its approval” notwithstanding the requirement that the

Board approve the merger once the Board found it unlikely to

present anti-competitive concerns. Canadian National Reply

to Barrington Req. for EIS 8 n.10, Nov. 21, 2007 (included at

J.A. 706). Canadian National made similar statements in

filings to the Board in February, March, and August 2008.

Repeating that mantra, Canadian National President and CEO

Hunter Harrison told the House Transportation Committee

that Congress had no need to pass legislation expressly

granting the Board environmental conditioning authority

because “under the existing act, [while] a minor transaction

cannot be turned down on environmental issues[, i]t can be

mitigated. . . . [W]e are perfectly willing to deal with that—to

resolve the environmental issues, mitigate the environmental

issues.” The “Taking Responsible Action for Community

Safety Act”: Hearing on H.R. 6707 Before H. Comm. on

Transp. and Infrastructure, 110th Cong. 51 (Sept. 9, 2008)

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(statement of E. Hunter Harrison, President & CEO, Canadian

National Railway Co.) But only twenty-one days after

Harrison testified before Congress, on the last 4 pages of its

152-page memorandum, Canadian National switched its

position, arguing for the first time that the Board lacks

authority to impose environmental conditions on “minor”

mergers.

The Board began its response to Canadian National’s

argument by barring the railroad from raising this objection,

explaining that Canadian National had waived the objection

by waiting too long to raise it and that the company was

estopped from maintaining a position clearly inconsistent with

the one its CEO had advanced before Congress. The Board

nonetheless considered Canadian National’s argument “for

the benefit of future applicants,” and found that it had

authority to impose conditions unrelated to competition-

concerns. Approval at 29. The Board located that authority in

49 U.S.C. § 11324(c) (“subsection (c)”), which states “[t]he

Board may impose conditions governing the transaction . . . .”

Having established that it possesses environmental

conditioning authority, the Board then exercised that authority

by imposing conditions to mitigate the effects of the

transaction and by requiring Canadian National to comply

with voluntary mitigation commitments negotiated with

several affected communities. Central to this case, the Board

imposed Condition 14, which required Canadian National to

bear 67% of the costs of building a grade separation at Ogden

Avenue, near Aurora, Illinois, and 78.5% of the costs of

building one at Lincoln Highway in Lynwood, Illinois.

Together these two conditions are expected to cost Canadian

National approximately $68 million.

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On January 31, 2009, Canadian National consummated

its acquisition of the EJ&E line. It then filed a petition for

review in this court, challenging Condition 14 as both

unlawful and arbitrary and capricious. Approximately a dozen

local governmental entities, including the Village of

Barrington, (“Community Petitioners”) also filed petitions for

review, challenging the Board’s compliance with the National

Environmental Policy Act (“NEPA”). We consolidated the

petitions and consider them all in this opinion.

II.

We must first determine whether Canadian National

preserved its argument that the Surface Transportation Board

lacks environmental conditioning authority. Abandoning its

estoppel rationale, the Board now argues only that Canadian

National has waived this argument because it waited too long

to raise it forcefully during the administrative process.

Community Petitioners also argue that Canadian National

should be barred, but for a different reason—that the railroad

consummated the acquisition of the EJ&E line before

challenging the conditions in this court.

In support of its waiver decision, the Board argues that

Canadian National “had an obvious obligation to raise its

objections to the Board’s conditioning authority clearly and

early in the proceeding so that the issue could be fully aired,”

Resp’t’s Br. 23, especially since the railroad was aware of the

Board’s interpretation, the Board having previously imposed

environmental conditions on “minor” mergers involving

Canadian National. Acknowledging, as it must, that Canadian

National’s comment arrived early enough for it to respond,

the Board nonetheless insists that Canadian National’s

tardiness prejudiced other commenters by depriving them of

the opportunity to develop their own counterarguments.

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In response, Canadian National emphasizes that it fully

complied with the schedule the Board itself established. As

the railroad points out, it raised its objection during the

comment period on the draft environmental impact

statement—the “one formal opportunity for comments” after

the Board “suggest[ed] imposing something akin to Condition

14.” Canadian National Reply Br. 14 (“CN’s Reply Br.”).

Canadian National argues as well that neither the Board,

which took eighty-five days to respond to its objection, nor

other commenters, who sought no post-comment period

opportunity to rebut Canadian National’s argument and who

would have had little to offer on this question of “pure

statutory interpretation,” were prejudiced by its last minute

filing. Id. at 14–15.

Although Canadian National’s change in position might

well have surprised Congress and the affected communities,

its actions fall short of the standard for waiver the Supreme

Court set forth in Vermont Yankee Nuclear Power Corp. v.

Natural Resources Defense Council, Inc., 435 U.S. 519

(1978), and United States v. L.A. Tucker Truck Lines, Inc.,

344 U.S. 33 (1952). In those two cases, the Supreme Court

established a rule that requires parties to “forcefully

present[],” Vermont Yankee, 435 U.S. at 554 (internal

quotation marks omitted), their arguments “at the time

appropriate under [agency] practice,” L.A. Tucker Truck

Lines, 344 U.S. at 37, or else waive the right to raise those

arguments on appeal. “Simple fairness to those who are

engaged in the tasks of administration, and to litigants,”

demands such a rule. Id. This rule ensures that agencies will

have the opportunity to develop their positions and correct

their errors before an appeal. Id. As for litigants, it “ ‘is

essential . . . that parties . . . have the opportunity to offer all

the evidence they believe relevant to the issues which the

[agency] is alone competent to decide [and] . . . that litigants

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. . . not be surprised on appeal by final decision there of issues

upon which they have had no opportunity to introduce

evidence.’ ” Sims v. Apfel, 530 U.S. 103, 109 (2000) (quoting

Hormel v. Helvering, 312 U.S. 552, 556 (1941)).

Here, all parties agree that Canadian National “forcefully

presented” its challenge on September 30, 2008, the last day

of the draft environmental impact statement’s comment

period. Vermont Yankee, 435 U.S. at 554. The Board offers no

convincing explanation for why this timing was not

“appropriate under [the Board’s] practice.” L.A. Tucker Truck

Lines, 344 U.S. at 37. After all, Canadian National submitted

its comment within the period the Board itself designated.

And unlike in L.A. Tucker Truck Lines, where the waived

argument was raised for the first time on appeal, and in

Vermont Yankee, where the Intervenor developed on appeal

an argument presented in only a “cryptic and obscure”

manner to the agency, Vermont Yankee 435 U.S. at 554, here

the Board had adequate time and opportunity to respond to a

clearly articulated argument before Canadian National filed

its petition for review.

The Board nonetheless urges us to follow the Eighth

Circuit’s reasoning in Otter Tail Power Co. v. Surface

Transportation Board, 484 F.3d 959 (8th Cir. 2007). There,

the Eighth Circuit barred as “fatally late” an argument raised

for the first time in a party’s simultaneously submitted final

brief because the other party “had no opportunity to

investigate or respond . . . [and because] the Board [lacked]

the opportunity to receive evidence relating to” the waived

argument. Id. at 963. According to the Board, a similar

concern exists here because Canadian National’s last-minute

timing deprived other commenters of any scheduled

opportunity to offer a rebuttal. But we are disinclined to

follow Otter Tail because both there and here the Board could

12

have structured its procedures to provide such rebuttal time.

Moreover, accepting the Board’s waiver theory would present

line-drawing questions that defy principled resolution.

Wouldn’t an argument raised for the first time on the second-

to-last day of the comment period also deprive other

commenters of the opportunity to respond? What about one

raised with a week remaining? In any event, this case is

distinguishable from Otter Tail given that the issue before us

is one of pure statutory interpretation, which does not depend

on evidence that an objecting commenter might provide.

Waiver is thus inappropriate under the circumstances of this

case.

We are similarly unpersuaded by Community Petitioners’

estoppel argument. Relying on Federal Power Commission v.

Colorado Interstate Gas Co., 348 U.S. 492 (1955), and Kaneb

Services, Inc. v. Federal Savings & Loan Insurance Corp.,

650 F.2d 78 (5th Cir. 1981), Community Petitioners argue

that once Canadian National “voluntarily consummated its

transaction based on [the Board’s] conditioned approval,”

estoppel barred the railroad from challenging those

conditions. Community Intervenors’ Br. 6–7. Yet unlike this

case, Colorado Gas and Kaneb dealt with collateral attacks on

conditions that had been imposed in earlier proceedings from

which no appeal had been taken. The finality and opportunism

concerns that motivated the courts in those cases are absent

here because Canadian National has filed a timely petition for

review directly from the proceeding where the conditions

were imposed.

III.

We turn, then, to the merits of Canadian National’s

statutory challenge. The railroad argues that subsection (d),

which mandates that “the Board shall approve” a “minor”

merger “unless it finds that” the merger is likely to cause

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anticompetitive effects, prohibits the Surface Transportation

Board from imposing conditions other than those related to

competition—such as the environmental conditions at issue

here. 49 U.S.C. § 11324(d) (emphasis added). The Board

rejected Canadian National’s interpretation, reasoning that

subsection (c)’s language—“the Board may impose

conditions governing the transaction”—applies to approvals

of all mergers, including “minor” mergers. Because resolving

this question turns significantly on the text of the Board’s

organic statute and on how Congress has shaped that text over

the years, we don our conductor’s cap for a ride through the

relevant rail regulatory history.

The Interstate Commerce Commission was the original

federal railroad regulator, retaining that role until Congress

abolished the Commission in 1995 and transferred its

remaining railroad regulatory authority to the Surface

Transportation Board. Since 1920, the Commission’s, and

now the Board’s, responsibilities have included reviewing all

railroad mergers and acquisitions. As was true then and is true

now, before a railroad could acquire another railroad or any of

its lines, it first had to obtain the Commission’s, and now the

Board’s, approval. See 49 U.S.C. § 11323. Until 1980, 49

U.S.C. § 11344(b) and (c) (now recodified as 49 U.S.C.

§ 11324(b) and (c)) set the standards under which the

Commission approved and imposed conditions on all mergers.

Subsection (b) included a non-exhaustive list of four factors

that the Commission was required to consider and

subsection (c) provided the more general “public interest”

standard. In relevant part, subsection (c) stated as follows:

The Commission shall approve and authorize a

transaction under this section when it finds the

transaction is consistent with the public

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interest. The Commission may impose

conditions governing the transaction.

49 U.S.C. § 11344(c) (1978). Under subsection (c)’s “public

interest” standard, the Commission possessed “extraordinarily

broad” discretion to decide not only whether to disapprove a

merger and on what basis, but also what kind of conditions, if

any, to impose on the merged railroad. S. Pac. Transp. Co. v.

ICC, 736 F.2d 708, 721 (D.C. Cir. 1984). Though the Board

points to no pre-1980 examples of the Commission imposing

environmental conditions specifically, the Board argues, and

Canadian National nowhere disagrees, that the Commission

had authority to disapprove or to impose conditions based on

environmental issues.

Seeking to expedite approval of smaller mergers “where

approval is routinely and consistently granted,” Congress

passed the Staggers Rail Act of 1980, H.R. Rep. No. 96-1430,

at 121 (1980) (Conf. Rep.), which added the following

subsection (d):

(d) In a proceeding under this section which

does not involve the merger or control of

at least two Class I railroads . . . the

Commission shall approve such an

application unless it finds that –

(1) as a result of the transaction, there is

likely to be substantial lessening of

competition, creation of a

monopoly, or restraint of trade in

freight surface transportation in any

region of the United States; and

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(2) the anticompetitive effects of the

transaction outweigh the public

interest in meeting significant

transportation needs.

Staggers Rail Act of 1980, Pub. L. No. 96-448, § 228(b), 94

Stat. 1895, 1931 (codified at 49 U.S.C. § 11324(d)). The Act

also set deadlines for the Commission to approve a “minor”

merger of either 180 or 300 days (depending on factors

irrelevant to this case). Id. § 228(d), 94 Stat. at 1932–33

(codified at 49 U.S.C. § 11325(b), (c)). In addition, the

Staggers Rail Act limited application of subsection (b)

approval factors to proceedings under this section “which

involve[] the merger or control of at least two Class I

railroads”—i.e. “major” mergers. Id. § 228(a), 94 Stat. at

1931 (codified at 49 U.S.C. § 11324(b)). Significantly for the

issue before us, however, Congress made no relevant changes

to subsection (c), which continues to apply to all

“transaction[s] under this section,” (i.e., section 11324). 49

U.S.C. § 11324(c).

Thus, following passage of the Staggers Rail Act, section

11324’s relevant provisions now read as follows:

(b) In a proceeding under this section which

involves the merger or control of at least

two Class I railroads . . . the Board shall

consider at least – [five factors listed in the

statute].

(c) The Board shall approve and authorize a

transaction under this section when it finds

the transaction is consistent with the

public interest. The Board may impose

conditions governing the transaction,

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including the divestiture of parallel tracks

or requiring the granting of trackage rights

and access to other facilities. . . .

(d) In a proceeding under this section which

does not involve the merger or control of

at least two Class I railroads . . . the Board

shall approve such an application unless it

finds that –

(1) as a result of the transaction, there

is likely to be substantial lessening

of competition, creation of a

monopoly, or restraint of trade in

freight surface transportation in

any region of the United States;

and

(2) the anticompetitive effects of the

transaction outweigh the public

interest in meeting significant

transportation needs.

Explaining the significance of these changes shortly after

Congress passed the Staggers Rail Act, the Seventh Circuit in

Illinois v. ICC, whose holding we embraced in Village of

Palestine v. ICC, held that “if the Commission finds no

substantial anticompetitive effect flowing from the proposed

[“minor”] transaction, its analysis is at an end. At that point,

[it] must approve the transaction . . . .” Illinois v. ICC, 687

F.2d 1047, 1053 (7th Cir. 1982); see also Vill. of Palestine v.

ICC, 936 F.2d 1335 (D.C. Cir. 1991) (relying on Illinois v.

ICC to excuse the ICC from considering issues unrelated to

competition in exempting a “minor” merger from section

11324(d) review because the Staggers Rail Act limited the

ICC’s disapproval authority to such issues). Left unanswered

17

by both Illinois v. ICC and Village of Palestine was whether

the Staggers Rail Act, and specifically subsection (d),

similarly narrowed the Commission’s conditioning authority

to competition-related issues and particularly whether the

Commission retained authority to impose environmental

conditions when approving “minor” mergers. That is the

question presented by this case.

Ordinarily, we review “an agency’s construction of the

statute which it administers” under the familiar principles of

Chevron, U.S.A., Inc. v. Natural Resources Defense Council,

Inc., 467 U.S. 837, 842 (1984). But Canadian National,

although apparently accepting that Congress has generally

delegated authority to the Board to “speak with the force of

law when it addresses ambiguity in the statute” at issue in this

case, insists that the Board has not exercised that authority

and so is owed no Chevron deference here since its views

were formulated through neither notice-and-comment

rulemaking nor formal adjudication. United States v. Mead

Corp., 533 U.S. 218, 229 (2001). In support, the railroad

relies on United States v. Mead Corp., in which the Supreme

Court observed “a very good indicator of delegation meriting

Chevron treatment . . . [is] a relatively formal administrative

procedure tending to foster . . . fairness and deliberation . . .

[such as] notice-and-comment rulemaking or formal

adjudication.” Id. at 229–30. We disagree with Canadian

National.

This Court has consistently granted Chevron deference to

the Board’s statutory interpretations when produced under

procedures comparable to the ones used in this case. See, e.g.,

HolRail, LLC v. Surface Transp. Bd. 515 F.3d 1313 (D.C. Cir.

2008). Granting Chevron deference here would therefore

comport with the Supreme Court’s recent reminder of “the

importance of maintaining a uniform approach to judicial

18

review of administrative action.” Mayo Found. for Med.

Educ. & Research v. United States, No. 09-837, slip op. at 9

(U.S. Jan. 11, 2011) (internal quotation marks omitted).

Moreover, the Board’s procedures are far more formal—and

thus much more likely to “foster . . . fairness and

deliberation”—than those at issue in Mead. 533 U.S. at 230.

In Mead, the Court reviewed an agency interpretation

contained in a single letter ruling whose precedential force

was limited to the letter’s recipient and that was merely one

among the many “being churned out at a rate of 10,000 a year

[by the] agency’s 46 scattered offices . . . .” Id. at 233. By

contrast, under sections 11324 and 11325, when the Board

reviews a merger application it must first publish notice of the

application in the Federal Register and receive written

comments. 49 U.S.C. § 11325(c). In addition, the

requirements of NEPA create further opportunities for public

participation. As a result, the proceedings in this case

included several Federal Register notices and extensive

media, community, agency, and political outreach; twenty-

two public hearings in and around Chicago attended by over

7000 people; a 3500 page draft and 3100 page final

environmental impact statement; multiple comment periods

that produced nearly 13,500 comments; and then a reasoned

opinion from the Board directly engaging the relevant

statutory issue. This case therefore falls comfortably within

the category of agency decision-making procedures that

support Chevron deference. Indeed, in Mead itself the

Supreme Court explained, “as significant as notice-and-

comment is in pointing to Chevron authority, the want of that

procedure here does not decide the [issue] for we have

sometimes found reasons for Chevron deference even when

no such administrative formality was required and none was

afforded.” 533 U.S. at 230–31; see also Menkes v. U.S. Dep’t

of Homeland Sec., No. 09-5372, slip op. at 18–23 (D.C. Cir.

19

Mar. 8, 2011) (granting Chevron deference to an agency

interpretation produced through informal adjudication).

Under Chevron, we must first determine whether “the

intent of Congress is clear,” for if “Congress has directly

spoken to the precise question at issue” then we must give

effect to Congress’s clear intent. Chevron, 467 U.S. at 842. At

this first step of the Chevron analysis we “employ[]

traditional tools of statutory construction,” id. at 843 n.9, to

determine whether Congress has “unambiguously foreclosed

the agency’s statutory interpretation.” Catawba Cnty., N.C. v.

EPA 571 F.3d 20, 35 (D.C. Cir. 2009). Congress may have

done so in one of two ways: either by prescribing a precise

course of conduct other than the one chosen by the agency, or

by granting the agency a range of interpretive discretion that

the agency has clearly exceeded. Because at Chevron step one

we alone are tasked with determining Congress’s

unambiguous intent, we answer both inquiries without

showing the agency any special deference. And if the agency

has either violated Congress’s precise instructions or

exceeded the statute’s clear boundaries then, as Chevron puts

it, “that is the end of the matter”—the agency’s interpretation

is unlawful. Chevron, 467 U.S. at 842.

But if we determine that statutory ambiguity has left the

agency with a range of possibilities and that the agency’s

interpretation falls within that range, then the agency will

have survived Chevron step one. At Chevron step two we

defer to the agency’s permissible interpretation, but only if the

agency has offered a reasoned explanation for why it chose

that interpretation. See Cont’l Air Lines, Inc. v. DOT, 843

F.2d 1444, 1452 (D.C. Cir. 1988). After all, we defer to an

agency’s statutory interpretations not only because Congress

has delegated law-making authority to the agency, but also

because that agency has the expertise to produce a reasoned

20

decision. Chevron, 467 U.S. at 844–45; see also Mayo

Found., slip op. at 10) (explaining that among “[t]he

principles underlying” Chevron deference is the need for an

agency to apply “more than ordinary knowledge”—i.e.,

“agency expertise”—when “fill[ing] . . . gap[s] left, implicitly

or explicitly, by Congress” (internal quotation marks and

citations omitted)). If an agency fails or refuses to deploy that

expertise—for example, by simply picking a permissible

interpretation out of a hat—it deserves no deference. For that

same reason, we give no deference to agency “litigating

positions” raised for the first time on judicial review. See

Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212 (1988).

Thus, again using “traditional tools of statutory construction,”

Chevron, 467 U.S. at 843 n.9, and considering only the

rationales the Board actually offered in its decision, we

determine whether its interpretation is “rationally related to

the goals of” the statute, AT&T Corp. v. Iowa Utils. Bd., 525

U.S. 366, 388 (1999).

Mindful of this framework, we begin our Chevron step

one analysis where, as explained above, we may overturn the

Board’s interpretation only if, as Canadian National contends,

the Staggers Rail Act unambiguously prohibits the Board

from imposing environmental conditions. Arguing that it does

just that, Canadian National points to subsection (d)’s

mandatory approval language—“the Board shall approve [a

‘minor’ merger] application unless” it has substantial

concerns relating to competition. 49 U.S.C. § 11324(d)

(emphasis added). This language, according to Canadian

National, eliminates all Board discretion to do anything but

approve a “minor” merger once the Board finds, as it did here,

that the merger will cause no substantial anticompetitive

effects. Subsection (d)’s legislative history reinforces this

interpretation because it reveals Congress’s intent to “narrow

the issues before [the Board] so that non-major transactions

21

could be reviewed expeditiously within the shorter deadlines

(now codified at section 11325(d)) that Congress

simultaneously enacted.” Pet’r Canadian National’s Br. 8

(“Pet’r CN’s Br.”) (summarizing the Staggers Rail Act

Conference Report). In addition, seeking to extend Village of

Palestine and Illinois v. ICC to the Board’s conditioning

authority, Canadian National contends that “[r]equiring

environmental issues to be resolved as a condition of approval

is the same in substance as denying approval because of

unresolved environmental issues,” and thus the Board’s

interpretation rests on a distinction between conditioning and

approval authority that is without meaningful difference. Id. at

9.

Finally, Canadian National argues that reconciling

Village of Palestine and Illinois v. ICC with the Board’s

interpretation of subsection (c) renders section 11324

incoherent. As Canadian National sees it, by ruling that the

Board must approve “minor” mergers using a competition-

only filter, rather than one focused more generally on the

public interest, Village of Palestine and Illinois v. ICC

necessarily held that subsection (c)’s first sentence—“[t]he

Board shall approve and authorize a transaction under this

section when it finds the transaction is consistent with the

public interest”—applies only to “major” mergers, whereas

the Board interprets subsection (c)’s second sentence—“[t]he

Commission may impose conditions governing the

transaction”—as applying to both “major” and “minor”

mergers. But such an interpretation makes no sense since both

sentences refer to the same “transaction” and since, unlike the

first sentence, which limits the Board’s approval authority to

the “public interest,” the second sentence supplies no criteria

governing what kinds of conditions the Board may impose.

Because, according to Canadian National, subsection (d)

replaces subsection (c)’s first sentence with respect to

22

“minor” mergers, it must likewise replace the second

sentence.

Canadian National’s interpretation is eminently

reasonable. But to prevail under Chevron step one, the

railroad must do more than offer a reasonable or, even the

best, interpretation; it must show that the statute

unambiguously forecloses the Board’s interpretation. See

Chevron, 467 U.S. at 843 n.11 (“The court need not conclude

that the agency construction was the only one it permissibly

could have adopted to uphold the construction, or even the

reading the court would have reached if the question initially

had arisen in a judicial proceeding.”). For several reasons,

Canadian National’s arguments fall short of meeting that

heavy burden.

First, subsection (c)’s plain text applies to all mergers,

both “major” and “minor.” Congress obviously knew how to

limit the Board’s authority to either one or the other since it

did so in subsections (b) and (d). Subsection (b) applies to all

mergers “which involve[] the merger or control of at least two

Class I railroads,” while subsection (d) applies to all mergers

“which do[] not involve the merger or control of at least two

Class I railroads.” By contrast, subsection (c) applies to all

“transaction[s] under this section” and “this section,” i.e.,

section 11324, covers all mergers both “major” and “minor.”

Yet Canadian National would have us ignore this textual clue,

notwithstanding one of the most basic tenets of statutory

interpretation, namely, “[w]here Congress includes particular

language in one [sub]section of a [provision] but omits it in

another [subsection], it is generally presumed that Congress

acts intentionally and purposely in the disparate inclusion or

exclusion.” Russello v. United States, 464 U.S. 16, 23 (1983)

(internal quotation marks omitted).

23

Second, because Congress left subsection (c) unchanged

when it added subsection (d), and because subsection (c) was,

prior to the Staggers Rail Act, the source of the ICC’s

extraordinarily broad conditioning authority—which the

Board argues, and Canadian National nowhere disagrees,

included environmental conditioning authority—Canadian

National’s construction would require us to conclude that

subsection (d) impliedly repealed or amended subsection (c).

See Nat’l Ass’n of Home Builders v. Defenders of Wildlife,

551 U.S. 644, 662-64 & n.8 (2007) (“NAHB”) (noting that an

implied amendment that “displaces earlier, inconsistent

commands” is conceptually identical to an implied partial

repeal). Repeals by implication, however, are strongly

disfavored “absent a clearly expressed congressional

intention.” Branch v. Smith, 538 U.S. 254, 273 (2003)

(citations and internal quotation marks omitted); see also

NAHB, 551 U.S. at 664 n.8 (“[I]mplied amendments are no

more favored than implied repeals.”). In other words, for

Canadian National to prevail, we must find in subsection (d) a

clearly expressed congressional intent to do implicitly what

Congress declined to do explicitly—narrow all of

subsection (c) to “major” mergers.

Given that subsection (d) refers only to the Board’s

approval standard, Canadian National’s implied repeal

argument depends on the proposition that conditioning

authority is equivalent to, and can be no broader than,

approval authority. But another provision of the Board’s

organic statute, 49 U.S.C. § 11326, which requires the Board

to impose labor conditions on most mergers, including most

“minor” ones, demonstrates that the Board’s conditioning

authority can be broader than its approval authority.

Moreover, this distinction appears throughout the law,

perhaps most prominently in First Amendment jurisprudence,

which distinguishes between unlawful prohibitions on speech

24

and lawful time, place, and manner restrictions that place

conditions on speech. See, e.g., Ward v. Rock Against Racism,

491 U.S. 781, 790-91 (1989). We are thus unpersuaded that

by narrowing the Board’s approval authority, Congress also

necessarily intended to narrow the Board’s conditioning

authority.

Canadian National’s counterarguments are unconvincing.

Rejecting the relevance of section 11326, the railroad argues

that because that provision “expressly mandates specific

(labor) conditions to be added to a merger approval,” CN’s

Reply Br. 7, “there has to be a reconciliation between the two

mandates”—to approve based on a competition-analysis and

to impose labor conditions, Oral Arg. Tr. 32–33. But

subsection (c)’s second sentence also stands as an express

grant of conditioning authority, albeit a more general one.

Moreover, section 11326’s mandatory nature only reinforces

the point that Congress saw no inconsistency in investing the

Board with conditioning authority broader than its

disapproval authority.

Nor do we think the 300 or 180 day statutory deadlines

emphasized by Canadian National are so short as to reveal an

unambiguous congressional intent to impliedly repeal the

Board’s environmental conditioning authority. In an

analogous line of cases, courts have found clear congressional

intent to impliedly repeal NEPA only where there was “a

clear and unavoidable conflict” between an agency’s organic

statute and NEPA, such as statutory deadlines so short that it

would be “inconceivable” for an agency to prepare an

environmental impact statement within that timeframe and a

requirement that agency review “automatically” ends when

the statutory deadline passes. Flint Ridge Dev. Co. v. Scenic

Rivers Ass’n of Okla., 426 U.S. 776, 787–89 (1976) (thirty

day deadline too short); see also City of New York v. Minetta,

25

262 F.3d 169 (2d Cir. 2001) (sixty day deadline too short). In

this case, we see no such “clear and unavoidable conflict.”

Flint Ridge Dev. Co., 426 U.S. at 788. For one thing, unlike

the statutes at issue in the cited NEPA cases, the Staggers Rail

Act contains no provision requiring that “minor” mergers are

“automatically” approved unless the Board acts before the

expiration of the statutory period. Indeed, the Board explained

that it “ha[s] certain procedural flexibility” to accommodate

environmental review to the relevant timeframes. Approval at

33 n.74. Moreover, as the Board observed, in several prior

“minor” merger cases it did complete its environmental

review and determine what kind of environmental conditions

to impose within the allotted timeframes. Id. (citing

Burlington N.—Control—Wash. Cent., 1 S.T.B. 792, 806-08

(1996)). True, here the Board’s environmental review

exceeded the relevant 180 day deadline. But given that the

statutory timeframes have been adequate in other cases, we

have no basis for thinking that “a clear and unavoidable

conflict” exists. Flint Ridge Dev. Co., 426 U.S. at 788. But

mindful that Congress expected the Staggers Rail Act to

expedite Board review of “minor” mergers, we by no means

suggest that the Board is free to disregard the statute’s

timeframes when interpreting the boundaries of its

conditioning authority over “minor” mergers. Quite to the

contrary, should the Board interpret its authority so broadly as

to make review of “minor” mergers within the statutory

timeframes “inconceivable,” then such an interpretation

would violate Congress’s clear intent. Nor do we mean to

suggest that in imposing environmental conditions, the Board

is free to ignore the Act’s deadlines. Were the Board to

“egregious[ly] . . . [or] unreasonabl[y] delay,” merger

applicants could seek a writ of mandamus. See Telecomms.

Research & Action Ctr. v. FCC, 750 F.2d 70, 79–81 (D.C.

Cir. 1984) (outlining the standard for issuing a writ of

26

mandamus to compel agency action in response to

unreasonable delay).

Canadian National also finds support for its implied

repeal theory in one of our “major” merger cases, Lamoille

Valley Railroad Co. v. ICC, where, in dicta appearing in a

footnote, we “reject[ed] . . . suggestions . . . that the

Commission has broader discretion in imposing conditions on

a merger than in approving or rejecting the merger as a

whole.” 711 F.2d 295, 301 n.3 (D.C. Cir. 1983). The railroad

also cites the ICC’s Illinois Terminal decision, in which the

Commission explained, “[W]e believe we should not attempt

to impose a condition on our approval of a transaction related

to a matter which we could not lawfully consider as a basis

for withholding our approval of that transaction.” Norfolk &

W. Ry. Co.—Purchase—Illinois Terminal R.R. Co., 363 I.C.C.

882, 891 (1981) (“Illinois Terminal”). Neither case supports

Canadian National’s position. Because Lamoille Valley

involved a “major” merger we had no need to grapple with

the textual or historical cues at issue here. We thus see little

relevance to our Chevron step one analysis in that decision’s

offhand remark. As for the ICC’s Illinois Terminal reasoning,

we note that the Commission never said, as Canadian

National contends here, that the statute must be read to limit

the Board’s conditioning authority to the breadth of its

approval authority. Illinois Terminal, 363 I.C.C. at 891.

Instead, the ICC said “we believe” that the statute “should” be

read that way. By using such words, the ICC made clear that

it was exercising discretion delegated by Congress to define

the breadth of its conditioning authority, which the agency is

free to exercise differently in the future so long as it offers a

reasoned explanation for the change. See Nat’l Cable &

Telecomms. Ass’n v. Brand X Internet Servs, 545 U.S. 967,

981 (2005) (“Agency inconsistency is not a basis for

declining to analyze the agency’s interpretation under the

27

Chevron framework.”). Although such reasoning, had the

Board adopted it here, might well have survived a Chevron

step two challenge, it has nothing to do with the Chevron step

one issue we face at this stage of our analysis—whether

subsection (d) unambiguously deprives the Board of its

subsection (c) authority to impose environmental conditions

on “minor” mergers.

Reinforcing our conclusion that section 11324 is

ambiguous with respect to the Board’s environmental

conditioning authority, the relationship between

subsections (c) and (d) creates ambiguity even with respect to

an authority the Board surely has, namely, to impose

competition-related conditions on “minor” mergers. See

Commuter Rail Div., Metra v. Surface Transp. Bd., 608 F.3d

24, 32 (D.C. Cir. 2010) (“Metra”) (noting that the Board

primarily focuses on imposing competition-related conditions

on “minor” mergers). Indeed, even Canadian National, though

agreeing that the Board has such authority, is candidly unsure

as to its statutory source. As the railroad explains, it “may be”

that subsection (c) rather than having no applicability to

“minor” mergers as the railroad otherwise argues, authorizes

competition-related conditioning authority for both “major”

and “minor” mergers. CN’s Reply Br. 6 n.3. “Alternatively, it

may be that . . . [subsection (c)] appl[ies] only to ‘major’

transactions, in which case [subsection (d)] can be read, like

the antitrust laws, to implicitly authorize” imposing

competition-based conditions on “minor” mergers. Id.

(emphasis added). Given that these provisions “may be” read

in any number of reasonable ways, they can hardly be

described as unambiguous. And if the relationship between

subsection (d) and subsection (c)’s second sentence is

ambiguous as to something as fundamental and universally

accepted as the Board’s authority to impose competition-

related conditions, then it would be quite odd to conclude that

28

the very same relationship between these two subsections—

on which the statutory issue in this case turns—is

unambiguous as to the Board’s authority to impose

environmental conditions.

Finally, we disagree with Canadian National that reading

subsection (c)’s second sentence as granting the Board

environmental conditioning authority necessarily renders the

section incoherent. To be sure, if, as the railroad insists,

subsection (d) partially repealed subsection (c)’s first sentence

so that the sentence applies only to “transactions” involving

“major” mergers, then Canadian National would be correct: it

would make no sense for the second sentence, which also uses

the word “transaction,” to cover both “major” and “minor”

mergers. See Comm’r v. Lundy, 516 U.S. 235, 250 (1996)

(“[T]he normal rule of statutory construction [is] that identical

words used in different parts of the same act are intended to

have the same meaning.” (internal quotation marks omitted)).

And it would indeed be troubling if the Board’s “minor”

merger conditioning authority were unconstrained by any

statutory criteria. See Pan. Ref. Co. v. Ryan, 293 U.S. 388

(1935). But since the Staggers Rail Act left both

subsection (c) sentences unchanged, it is also reasonable to

read them as continuing to apply to all mergers. This avoids

the inconsistency central to Canadian National’s argument—

interpreting “transaction” to refer to “major” mergers in the

first sentence but to all mergers in the second sentence. It also

leaves both the Board’s approval and conditioning authority

constrained by subsection (c)’s broad “public interest”

standard. To be sure, as we held in Village of Palestine and as

the Seventh Circuit held in Illinois v. ICC, the Board’s

authority to disapprove a “minor” merger is further

constrained by subsection (d)’s more specific command. But

because subsection (d) says nothing about conditioning

29

authority, the Board’s subsection (c) conditioning authority

need not also be so narrow.

For all these reasons, we conclude that nothing in section

11324 unambiguously forecloses the Board from imposing

environmental conditions on “minor” mergers. This

conclusion, we emphasize, is narrow. In rejecting Canadian

National’s argument, we make no definitive judgment about

the breadth of the Board’s conditioning authority, which

might extend beyond environmental conditions. Likewise, the

Board is free to interpret its conditioning authority as

narrowly as Canadian National insists, so long as it can

reasonably defend that decision. We hold only that given the

statute’s ambiguity, a range of interpretations is permissible,

and that the Board’s current interpretation falls within that

range. Cf. Metra, 608 F.3d at 31–33 (upholding the Board’s

decision not to exercise its “extraordinarily broad” discretion

to impose contract-altering conditions unrelated to

competition on a “minor” merger).

We turn, therefore, to Chevron step two where we ask

whether the Board has reasonably explained how the

permissible interpretation it chose is “rationally related to the

goals of” the statute. AT&T Corp., 525 U.S. at 388. Unlike

our Chevron step one analysis, our review at this stage is

“highly deferential.” Nat’l Rifle Ass’n of Amer. v. Reno, 216

F.3d 122, 137 (D.C. Cir. 2000).

The Board began its analysis by acknowledging that in

Illinois Terminal, one of the ICC’s first post-Staggers Rail

Act “minor” merger cases, the Commission had declined to

exercise its conditioning power to impose traditional public

interest conditions. The Board nonetheless distinguished

between environmental conditions and “traditional public

interest conditions unrelated to competition.” Approval at 31.

30

Environmental conditions are, the Board explained,

“different.” Id.

Most significantly, the Board grounded this distinction in

the National Environmental Policy Act. Noting that in NEPA

Congress directed agencies to “interpret[] and administer[]”

their organic statutes “in accordance” with that statute’s

environmental protection policies “to the fullest extent

possible,” 42 U.S.C. § 4332, and that this court in Natural

Resources Defense Council, Inc. v. EPA, 859 F.2d 156 (D.C.

Cir. 1988) (“NRDC”), understood that command as

“authoriz[ing] the agency to make decisions based on

environmental factors not expressly identified in the agency’s

underlying statute,” id. at 169, the Board determined that it

could “compl[y] with NEPA’s mandate by construing the

Interstate Commerce Act to permit the imposition of

environmental conditions in mergers subject to section

11324(d).” Approval at 32.

Challenging the Board’s reliance on NEPA, Canadian

National argues that “NEPA . . . is a procedural statute” that

“does not modify an organic statute.” Pet’r CN’s Br. 15–16.

This is, of course, true. Because NEPA’s “mandate to . . .

agencies is essentially procedural,” Vermont Yankee, 435 U.S.

at 558, it “does not expand an agency’s substantive powers,”

NRDC, 859 F.2d at 169, and “federal judges . . . enforce the

statute by ensuring that agencies comply with NEPA’s

procedures, . . . not by trying to coax agency decisionmakers

to reach certain results,” Citizens Against Burlington, Inc. v.

Busey, 938 F.2d 190, 194 (D.C. Cir. 1991). As noted above,

however, we have observed that where Congress delegates a

discretionary decision to an agency, NEPA may, within the

boundaries set by Congress, “authorize[] the agency to make

decisions based on environmental factors not expressly

identified in the agency’s underlying statute.” NRDC, 859

31

F.2d at 169. Because under Chevron an agency exercises such

congressionally delegated discretion when it interprets

ambiguities within its organic statute, an agency may

appropriately decide that NEPA counsels in favor of the more

environmentally protective interpretation so long as that

interpretation “fall[s] within the agency’s appropriate

province under its organic statute(s).” Id. (emphasis added).

This is exactly what happened here. Because the interaction

between subsections (c) and (d) creates ambiguity about the

extent of the Board’s conditioning authority over “minor”

mergers, the Board relied on NEPA to support its construction

of the statute as preserving its authority to impose

environmental conditions on “minor” mergers.

The Board believed its reliance on NEPA was

particularly appropriate in light of the Staggers Rail Act’s

legislative history. Early in the legislative process Congress

considered but did not later adopt a version of the Act that

would have exempted mergers from NEPA, see H.R. 7235,

96th Cong. § 309(a) (May 1, 1980), even while it

contemporaneously exempted other railroad regulation, see,

e.g., Milwaukee Railroad Restructuring Act, Pub. L. No. 96-

101, § 19, 93 Stat. 736, 746 (1979) (codified at 45 U.S.C

§ 917). According to the Board, since NEPA, though merely a

procedural statute, is intended to be action-forcing, this

legislative history suggests that Congress believed that the

Board would still have the capacity to act. Canadian National

dismisses the relevance of this legislative history, stating

“inferences of legislative intent from unenacted legislation are

unreliable.” Pet’r CN’s Br. 17 n.8. The railroad’s caution is

well taken, but only to a point. Although we would be

uncomfortable relying on such legislative history at Chevron

step one, we think it may appropriately guide an agency in

interpreting an ambiguous statute—just how the Board used it

here.

32

Besides its NEPA-based rationales, the Board identified

certain other considerations it believed counseled in favor of

its interpretation. Specifically, it pointed to another provision

in its organic statute, section 11321(a), which exempts

merged railroads from “the antitrust laws and from all other

law, including State and municipal law, as necessary to let”

the merged railroad “carry out” the merger. 49 U.S.C.

§ 11321(a). Interpreting that provision as exempting merged

railroads from state and local environmental laws, the Board

worried that if it lacked environmental conditioning authority,

then affected communities would be powerless to address

substantial environmental impacts caused by “minor”

mergers—a result the Board believed Congress could not

have intended. The current transaction illustrates the

significance of this concern. As the Board explained, although

Canadian National’s acquisition “is expected to provide

nationwide economic benefits,” it will also “impose

substantial environmental costs on the local communities

along the EJ&E line[, including] emergency response delays,

increased vehicular traffic congestion and delays, increased

noise and vibration, and increased safety issues at

highway/rail at-grade crossings.” Approval at 33–34. And, in

fact, to avoid just such scenarios, the Board has, at least since

1996, regularly imposed environmental conditions on “minor”

mergers—including in transactions involving Canadian

National. Id. at 29 & n.56, 31 & n.69.

Canadian National criticizes the Board for relying on

“policy argument[s]” best left for Congress instead of “legal

argument[s] about the meaning of section 11324(d).” Pet’r

CN’s Br. 14. But when an agency interprets ambiguities in its

organic statute, it is entirely appropriate for that agency to

consider, as the Board has done here, policy arguments that

are “rationally related to the [statute’s] goals.” AT&T Corp.,

33

525 U.S. at 388. “[A]s long as the agency stays within

[Congress’s] delegation, it is free to make policy choices in

interpreting the statute, and such interpretations are entitled to

deference.” Ariz. Pub. Serv. Co. v. EPA, 211 F.3d 1280, 1287

(D.C. Cir. 2000) (quotation marks omitted).

Canadian National also attacks the Board for having

recognized in its appellate brief only a single, “unworkable”

limit—that its conditions “must not be ‘tantamount to

disapproval.’ ” CN’s Reply Br. 8 (quoting Resp’t’s Br. 34

n.59). But we do not understand the Board to be taking a

position on whether it may impose conditions that would be

“tantamount to disapproval.” Rather, the Board merely

assumes that even if such a limit exists, “the conditions the

Board imposed on [Canadian National] [were] not of that

sort.” Resp’t’s Br. 34 n.59. In any event, we have no need to

resolve whether subsection (d) requires the Board to ensure

that the environmental conditions it imposes on a “minor”

merger under subsection (c) are not tantamount to disapproval

given that Canadian National seems never to have argued

during the administrative process either that the Board should

adopt such a limit or that the limit was breached. See L.A.

Tucker Truck Lines, 344 U.S. at 35 (argument waived if not

first raised to the agency).

To sum up then, the Board offered three basic rationales

in defense of its statutory interpretation: that NEPA counsels

in favor of the more environmentally protective interpretation;

that had Congress intended to terminate the Board’s

subsection (c) authority to impose environmental conditions,

it would have adopted the amendment exempting the Board’s

merger review from NEPA; and that if the Board lacked

authority to address substantial environmental impacts caused

by “minor” mergers, then local communities might be unable

to confront such problems. Given our highly deferential

34

standard of review at Chevron step two, we think the latter

two explanations are “rationally related to the goals of” the

Board’s organic statute. AT&T Corp., 525 U.S. at 388. The

Board’s first explanation likewise supports its statutory

interpretation. Not only does the explanation comport with

NRDC, in which we explained that within the boundaries set

by Congress NEPA may “authorize[] the agency to make

decisions based on environmental factors not expressly

identified in the agency’s underlying statute,” NRDC, 859

F.2d at 169, but it also reflects a reasonable excercise of the

Board’s discretion to interpret its underlying statute to ensure

that its compliance with another statute (NEPA) is more than

a pointless bureaucratic exercise. Because we owe an agency

great deference at Chevron step two, these explanations, taken

together, are sufficient to support the Board’s conclusion that

its subsection (c) conditioning authority still includes the

power to impose environmental conditions on “minor”

mergers.

IV.

In addition to its statutory challenge, Canadian National

argues that Condition 14, which requires it to bear a

substantial portion of the cost of constructing the Ogden

Avenue and Lincoln Highway grade separations, is arbitrary

and capricious. For their part, Community Petitioners identify

a host of alleged defects in the Board’s preparation of the

environmental impact statement. Because these challenges

deal, at least in part, with overlapping issues, we consider

them together.

We start by describing in greater detail how the Board’s

Section of Environmental Analysis prepared the

environmental impact statement. With the assistance of HDR

Engineering, Inc., an environmental contractor that Canadian

National suggested from the Board’s pre-screened contractor

35

list and that SEA approved, SEA began by setting the scope

of its environmental investigation. See 40 C.F.R. § 1501.7

(setting out “scoping” procedures). Soliciting feedback from

other government agencies and the public, SEA published

notices in the Federal Register and in local newspapers; held

fourteen public meetings attended by over 2600 people;

consulted with local, state, and federal agencies and officials;

and received almost 4000 comments. During the scoping

process, SEA adopted Canadian National’s goals as the

“purpose and need” of the Board’s review of the EJ&E

acquisition. See 40 C.F.R. § 1502.13 (“The [environmental

impact statement] shall briefly specify the underlying purpose

and need to which the agency is responding in proposing the

alternatives including the proposed action.”). Those goals

included “improv[ing] [Canadian National’s] operations in

and beyond the Chicago area by providing . . . a continuous

rail route around Chicago, under [Canadian National’s]

ownership, that would connect the five [Canadian National]

lines that presently radiate from Chicago.” Approval at 9.

SEA then published a 3500 page draft environmental

impact statement and solicited comments during a sixty-day

period. To encourage and facilitate that process, SEA

published notices in the Federal Register, placed ads in local

newspapers, issued press releases to local media, and held

eight public meetings attended by over 4500 people, including

3000 in Barrington. SEA received over 9500 comments. It

then published a 3100 page final environmental impact

statement, which reflected changes based on additional

analysis and responses to public comments.

The final environmental impact statement, which

incorporates by reference large portions of the draft, describes

SEA’s consideration of a wide range of environmental

impacts, as well as its examination of particular mitigation

36

strategies. Because 73% of road crossings on the EJ&E line

lack grade separation, SEA studied how increased freight

traffic would worsen traffic congestion, increase the risk of

collisions, slow emergency responders, and increase the

likelihood of hazardous material spills in communities along

the rail line.

To study the transaction’s impact on traffic congestion,

SEA began by articulating three criteria: crossing Level of

Service (LOS), a measure of how freely traffic moves at a

crossing; queue length, a measure of how far traffic backs up

when a train passes; and total vehicle delay, the combined

amount of time that freight trains delay all vehicles during a

twenty-four hour period. Using these criteria, SEA considered

a crossing to be “substantially affected” by the transaction if

(1) crossing LOS would drop below a certain level, (2) the

vehicle queue would block a major thoroughfare, or (3) total

vehicle delay would exceed 2400 minutes (40 hours).

Applying this framework, SEA winnowed the list of 112

railroad crossings along the EJ&E line down to thirteen

“substantially affected” crossings.

As to the increased risk of trains colliding with vechicles,

SEA measured vehicle exposure—calculated by multiplying

the number of trains per day by the number of vehicles per

day—at each crossing. SEA identified three crossings with

exposures exceeding or nearing 1 million.

Next, SEA considered three potential traffic mitigation

strategies for the thirteen “substantially affected” crossings

(which included two of the three crossings with exposures

exceeding or nearing 1 million): traffic advisory signals,

roadway widening, and “grade separation.” Observing that

traffic advisory signals offer a cost-effective strategy for

preventing long vehicle queues from blocking other

37

roadways, whereas grade separation is extremely costly and

can adversely affect a community’s character, SEA favored

traffic advisory signals for the four “substantially affected”

crossings where long traffic queues would occur. By contrast,

SEA recommended grade separation at those crossings that

exceeded or neared SEA’s thresholds for crossing LOS, total

vehicle delay, or vehicle exposure because traffic advisory

signals would be ineffective. SEA relied as well on the

Federal Highway Administration Handbook’s guidance that

“crossings should be considered for grade separation . . .

whenever,” among other things, total vehicle delay exceeds

2400 minutes or vehicle exposure exceeds 1 million. Federal

Highway Administration, Railroad-Highway Grade Crossing

Handbook 151 (2007) (“Handbook”). Based on this analysis,

SEA recommended traffic advisory signals at four

“substantially affected” crossings, grade separation at two

such crossings, and no mitigation at five others. Noting that it

might also have recommended grade separation for two

crossings in Joliet, SEA deferred instead to the voluntary

mitigation agreement Joliet had negotiated with Canadian

National.

SEA also identified emergency responders who would be

“substantially affected” by Canadian National’s acquisition of

the EJ&E line. Rejecting their calls to impose grade

separation, SEA instead recommended installation of closed-

circuit cameras to enable emergency dispatchers to monitor

freight traffic and adjust dispatch plans accordingly.

With respect to the two crossings designated for grade

separation, SEA recommended requiring Canadian National

to contribute 15% of the cost. It selected this figure because

SEA estimated that the acquisition would, on average,

increase traffic delays in the Chicago metropolitan area by

15%.

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Turning to the risk of hazardous material spills, SEA

projected how frequently Canadian National trains would

release such materials within each segment of the EJ&E line

and examined the six serious incidents that had occurred in

the past five years on the EJ&E line or on Canadian

National’s five existing Chicago area lines. Based on that

information, SEA concluded not only that the risk of a

hazardous material release in any particular location would be

“remote,” but also that any such release would be readily

containable. SEA thus rejected the need to install a hazardous

material containment system along the EJ&E line, finding

instead that existing regulations and Canadian National’s

current business practices would adequately protect the

populace and surrounding environment from hazardous

material spills.

In addition to the foregoing, SEA considered how

Canadian National’s acquisition of the EJ&E line would

affect wildlife near the rail line. Among other actions, SEA

worked with the U.S. Department of the Interior, state

agencies, and Canadian National to limit the railroad’s impact

on endangered and threatened species.

Once SEA had completed the final environmental impact

statement, the Board approved the Canadian National merger.

As noted earlier, in that decision, the Board imposed many of

the conditions proposed by SEA, including grade separations

at Ogden Avenue and Lincoln Highway. See supra 8.

Although SEA had recommended that Canadian National bear

15% of the cost of each separation, the Board, based on its

calculation of the transaction’s impact at each crossing,

increased the railroad’s share significantly—to 67% at Ogden

Avenue and to 78.5% at Lincoln Highway. The Board also set

a deadline of 2015 for Illinois to commit the remaining funds

39

and begin construction on the grade separations, after which

Canadian National would no longer be responsible for its

share. The Board declined to require grade separations at any

other crossings because it agreed with SEA that traffic

advisory signals would more cost-effectively prevent long

traffic queues from blocking other major roads, the principal

problem at those intersections.

In its petition for review, Canadian National challenges

as arbitrary and capricious the criteria the Board used to select

which intersections needed grade separation, as well as the

requirement that it bear a substantial portion of those projects’

costs. Community Petitioners raise a series of NEPA

challenges, including that the Board failed to select and

supervise HDR, its third-party contractor; improperly adopted

Canadian National’s goals as its own; failed to take a “hard

look” at the transaction’s claimed benefits; failed adequately

to consider direct, indirect, and cumulative environmental

impacts; overly relied on voluntary mitigation, reporting, and

consultation mandates, and compliance with existing laws and

regulations to mitigate environmental impacts; and failed

adequately to examine the transaction’s impact on traffic

congestion, emergency responders, the threat of hazardous

material spills, and the danger to wildlife. Community

Petitioners also argue that the Board acted arbitrarily and

capriciously in releasing Canadian National from its financial

commitment after 2015.

In reviewing Canadian National’s challenges, we apply

the APA’s arbitrary and capricious standard. 5 U.S.C.

§ 706(2)(A). Our scope of review under that standard “is

narrow.” Motor Vehicles Mfrs. Ass’n v. State Farm Mut. Auto.

Ins. Co., 463 U.S. 29, 43 (1983). Ordinarily, we will overturn

an agency decision only “if the agency has relied on factors

which Congress has not intended it to consider, entirely failed

40

to consider an important aspect of the problem, offered an

explanation for its decision that runs counter to the evidence

before the agency, or is so implausible that it could not be

ascribed to a difference in view or the product of agency

expertise.” Id. We review Community Petitioners’ challenges

under NEPA’s equally deferential standard. Our job is

principally to “ensure that the agency has adequately

considered and disclosed the environmental impact of its

actions[,] . . . that its decision is not arbitrary and

capricious[, and] . . . that the agency took a ‘hard look’ at the

environmental consequences of its decision.” Comtys. Against

Runway Expansion, Inc. v. FAA, 355 F.3d 678, 685 (D.C. Cir.

2004). Because “NEPA merely prohibits uninformed—rather

than unwise—agency action,” we must be careful not to

displace the agency’s substantive judgment with our own.

Robertson v. Methow Valley Citizens Council, 490 U.S. 332,

351 (1989).

Condition 14

Attacking the Board’s decision to require grade

separations at Ogden Avenue and Lincoln Highway, Canadian

National criticizes the Board for failing to conduct a cost-

benefit analysis and for deviating from the Board’s

established standards for determining where grade separations

are necessary. According to Canadian National, the Board has

previously focused only on crossing LOS and not on total

traffic delay, queue length, or vehicle exposure. Finding

nothing arbitrary and capricious about the Board’s decision to

use these criteria or in how the Board applied them, we reject

Canadian National’s challenge.

With respect to Canadian National’s demand that the

Board use cost-benefit analysis, the railroad points to no

statutory or regulatory requirement that the Board do so. Nor

does Canadian National cite to any authority—and we are

41

aware of none—for the proposition that the APA’s arbitrary

and capricious standard alone requires an agency to engage in

cost-benefit analysis. Moreover, the Board relied, reasonably

in our view, on expert advice contained in the Federal

Highway Administration Handbook, which recommends

imposing grade separation irrespective of cost considerations

whenever thresholds for total vehicle delay or for vehicle

exposure are exceeded, as they were, or nearly were, at both

the Ogden Avenue and Lincoln Highway crossings.

Handbook at 151. In any event, the Board took due account of

cost not only when it winnowed down the list of 112 at-grade

intersections to the 13 most “substantially affected” ones, but

also when it rejected grade separations at crossings in

Barrington in favor of more economical traffic advisory

signals and closed circuit cameras.

As for Canadian National’s argument that the Board’s

criteria deviated from established standards, the Board points

out that it has used some of these same criteria to assess the

need for grade separation in previous cases. See, e.g., San

Jacinto Rail Ltd.—Construction Exemption—Burlington N. &

Santa Fe Ry.—Operation Exemption—Build-Out to the

Bayport Loop, STB Finance Docket No. 34079, Draft

Environmental Impact Statement, at app. F.2 (Dec. 6, 2002)

(relying on the Federal Highway Administration Handbook).

Moreover, the Board offered a reasoned explanation for why

crossing LOS alone was inadequate in this case—namely, its

concern that crossing LOS would fail to capture how

increased railroad operations in a population-dense region

would impact regional mobility and traffic safety—and then

selected additional criteria with well-established pedigrees.

Challenging the Board’s cost-allocations for the Ogden

Avenue and Lincoln Highway grade separations, Canadian

National argues that they far exceed well-established federal

42

and state policies that cap railroad contributions to grade

separation projects at 5%. Those policies, however, apply

only where a governmental entity has proposed a grade

separation paid for with federal funds. See 23 U.S.C. § 130;

23 C.F.R. § 646.210(b). By contrast, the higher proportion of

costs the Board imposed on Canadian National is not unusual

where, as here, the railroad, as opposed to the government,

proposes the action that creates the need for grade separation

and where no federal funds are involved. Cf. Atchison, Topeka

& Santa Fe R.R. v. Pub. Utils. Comm’n, 346 U.S. 346, 352–

53 (1953) (upholding against a Due Process Clause challenge

a state’s requirement that a railroad pay 50% of the cost

allocation of a grade-separation); Iowa, Chi., & E. R.R. v.

Wash. Cnty., 384 F.3d 557, 562 (8th Cir. 2004) (explaining

that a state may require a railroad to pay more than 5% of the

cost of non–federally funded grade separations so long as the

allocation is “fair and reasonable”). The Board’s decision is

also entirely consistent with its policy of “requiring [railroads]

to mitigate transaction-related impacts, but not pre-existing

conditions.” Resp’t’s Br. 52.

We reject as well Community Petitioners’ challenge to

the Board’s decision to release Canadian National from its

financial obligation if work fails to begin on the grade

separations by 2015. As the Board explained, this challenge is

premature because “if reasonable progress has been made, yet

it becomes clear that construction is not likely to be initiated

by 2015 due to circumstances beyond [the Illinois Department

of Transportation’s] control, such as a long appeals process,

the Board will entertain requests to extend the time deadlines”

under 49 U.S.C. § 722(c), which gives the Board authority to

reopen a proceeding “because of material error, new evidence,

or substantially changed circumstances.” Canadian Nat’l Ry.

Co.—Control—EJ&E W. Co., STB Finance Docket No.

35087, Decision No. 21, at 5–6 (Oct. 23, 2009). If the Illinois

43

Department of Transportation or one of the Community

Petitioners asks the Board to exercise that authority in or

around 2015 and the Board refuses, we can consider at that

time whether the Board acted arbitrarily or capriciously.

Barrington Grade Crossings

As noted above, Community Petitioners argue, among

other things, that the environmental impact statement failed to

take the requisite “hard look” at traffic congestion and

emergency responder delays in Barrington, as well as that the

Board failed to adequately examine strategies for mitigating

those impacts. Based on the Board’s criteria, it concluded that

one of Barrington’s four crossings, at Hough Street, would be

“substantially affected” by the merger, primarily because long

traffic queues on Hough Street were projected to block

another major thoroughfare, Northwest Highway, which also

crosses the EJ&E line. The Board then determined that traffic

advisory signals could cost-effectively mitigate this problem

and that grade separations across Hough Street and Northwest

Highway were unnecessary since neither crossing was

projected to exceed Board thresholds for grade separation,

such as 2400 minutes of total vehicle delay. Between

publishing the draft and final environmental impact

statements, the Board also commissioned an additional traffic

study, which concluded not only that much of Barrington’s

traffic congestion stemmed from pre-existing conditions, but

also that Canadian National’s acquisition would increase

congestion during peak morning and evening hours by only

4% to 5%.

Challenging the Board’s reliance on the traffic study,

Community Petitioners point out that the Village of

Barrington commissioned its own study showing that vehicle

delays for Hough Street and Northwest Highway would far

exceed the 2400 minute threshold. But we decline to consider

44

the significance of Barrington’s traffic study because, as

counsel for Community Petitioners conceded at oral

argument, they failed to mention their study until their reply

brief, thus depriving the Board of a fair opportunity to

respond. See Oral Arg. Tr. 74; see also Bd. of Regents of

Univ. of Wash. v. EPA, 86 F.3d 1214, 1221 (D.C. Cir. 1996)

(“[W]e have generally held that issues not raised until the

reply brief are waived.” (citations omitted)). Without their

traffic study, Community Petitioners’ argument that they were

treated differently than similarly situated communities must

fail given that the Board’s study projected that the Barrington

crossings would not exceed the 2400 minute threshold while

those crossings warranting grade separation (Ogden Avenue

and Lincoln Highway) would.

We likewise find no merit to the Community Petitioners’

challenge relating to emergency responders. The

environmental impact statement identified which emergency

responders would be “substantially affected” and proposed

specific measures to mitigate the impact on them. NEPA

requires nothing more.

Remaining NEPA Challenges

We have reviewed Community Petitioners’ other

objections to the environmental impact statement and found

them without merit. The Board did all that NEPA required of

it: it set out the purpose and need for the transaction,

evaluated alternatives that would reasonably and feasibly

accomplish that purpose and need, identified and took a “hard

look” at the transaction’s environmental impacts, examined

strategies for mitigating those impacts, and fielded and

responded to thousands of comments from local, state, and

federal agencies and from the community. Having found no

“error[s] [that] compromise[d] the objectivity and integrity of

the [NEPA] process,” we have no need to consider

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Community Petitioners’ claim that the Board improperly

selected or supervised its contractor. See Citizens Against

Burlington, 938 F.2d at 202 (internal quotation marks

omitted).

V.

For the foregoing reasons, we deny the petitions for

review.

So ordered.