Friends of Eel River v. North Coast Ry. Auth.

Filed 7/27/17

IN THE SUPREME COURT OF CALIFORNIA

FRIENDS OF THE EEL RIVER, )

)

Plaintiff and Appellant, ) S222472

v. )

) Ct.App. 1/5 A139222

NORTH COAST RAILROAD )

AUTHORITY et al., )

) Marin County

Defendants and Respondents; ) Super. Ct. No. CV1103605

)

NORTHWESTERN PACIFIC )

RAILROAD COMPANY, )

)

Real Party in Interest )

and Respondent. )

_______________________________________)

)

CALIFORNIANS FOR )

ALTERNATIVES TO TOXICS, )

)

Plaintiff and Appellant, )

)

v. )

) Ct.App. 1/5 A139235

NORTH COAST RAILROAD )

AUTHORITY et al., ) Marin County

) Super. Ct. No. CV1103591

Defendants and Respondents; )

)

NORTHWESTERN PACIFIC )

RAILROAD COMPANY, )

)

Real Party in Interest )

and Respondent. )

In this case we decide whether federal law, the ICC [Interstate Commerce

Commission] Termination Act of 1995 (Pub.L. No. 104-88 (Dec. 29, 1995) 109 Stat.

SEE CONCURRING AND DISSENTING OPINIONS

803) (ICCTA; see 49 U.S.C. § 10101 et seq.), preempts application of the California

Environmental Quality Act (CEQA; Pub. Resources Code, § 21000 et seq.), to a railroad

project that has been undertaken by a state public entity, defendant North Coast Railroad

Authority (NCRA), along with lessee real party in interest, Northwestern Pacific Railroad

Company (NWPCo), a private entity.

The Court of Appeal determined that ―CEQA is preempted by federal law when

the project to be approved involves railroad operations.‖ We conclude that the ICCTA is

not so broadly preemptive.

True, the ICCTA contemplates a unified national system of railroad lines subject

to federal, and not state, regulation. Indeed, it appears settled that the ICCTA would

preempt state regulation in the form of the state‘s imposition of environmental

preclearance requirements on a privately owned railroad that prevented the railroad from

operating. But in this case we must explore the application of the ICCTA preemption

clause to the state‘s decisions with respect to its own subsidiary governmental entity in

connection with a railroad project owned by the state.

When the project is owned by the state, the question arises whether an act of self-

governance on the part of the state actually constitutes regulation at all within the terms

of the ICCTA. Even though the ICCTA applies to state-owned rail lines, in the sense that

states as owners cannot violate provisions of the ICCTA or invade the regulatory

province of the federal regulatory agency, this is not the end of the question. In our view,

the application of state law to govern the functioning of subdivisions of the state does not

necessarily constitute regulation. To determine the reach of the federal law preempting

state regulation of a state-owned railroad we must consider a presumption that, in the

absence of unmistakably clear language, Congress does not intend to deprive the state of

sovereignty over its own subdivisions to the point of upsetting the usual constitutional

balance of state and federal powers.

2

There is another aspect of the state‘s status as the owner of the railroad that is

significant. The ICCTA, although it contemplates a rail system that is unified on a

nationwide basis, also contemplates a rail industry that is subject to relatively limited

regulation on the part of the federal government. Where the federal law has deregulated,

the states are not free to fill regulatory voids. But the ICCTA‘s deregulatory feature also

frees railroad owners to make market-based decisions and not suffer an undue level of

regulation of any kind. In the area of activity in which a private owner is free from

regulation, the private owner nonetheless ordinarily would have internal corporate rules

and bylaws to guide those market-based decisions. In other words, a private

conglomerate that owns a subsidiary railroad company is not required to decide whether

to go forward with a railroad project, for example, by tossing a coin. Rather, it can make

the decision based on its own corporate guidelines, and require its rail company to do the

same.

When we consider that the ICCTA has a deregulatory purpose that leaves railroad

owners with a considerable sphere of action free from regulation, we see that the state, as

owner, must have the same sphere of freedom of action as a private owner. But unlike

other owners, to act in that deregulated sphere, the state ordinarily acts through its laws.

In the circumstances here, those state laws are not regulation in the marketplace within

the meaning of the ICCTA, but instead are the expression of the state‘s choice as owner

within the deregulated sphere. This is how the deregulatory purpose of the ICCTA

necessarily functions when state-owned, as opposed to privately owned, railroad lines are

involved.

We acknowledge that, like the private owner, the state as owner cannot adopt

measures of self-governance that conflict with the ICCTA or invade the regulatory

province of the federal regulatory agency. But there is a sphere of regulatory freedom

enjoyed by owners, and there are at least two specific areas of regulatory freedom that are

present in this case. Specifically, environmental decisions concerning track repair on an

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existing line and the level of freight service within certain boundaries to be offered on an

existing line appear to be within the regulatory sphere left open to owners. We conclude

that this freedom belongs to the state as owner, as well, and under these circumstance, the

ICCTA does not preempt the application of CEQA to this project.

I. Factual and Procedural Background

An intrastate railroad line runs from Lombard, in Napa County, north to Arcata, in

Humboldt County. The northern, or so-called Eel River division of the line, is quite

decayed and runs through the environmentally sensitive Eel River Canyon. The southern,

or so-called Russian River division of the line, also formerly in poor condition, runs

between a southern terminus in Lombard north to Willits, in Mendocino County. There

is a connection to an interstate rail line at Lombard. The project under review involves

resumption of freight service in the Russian River division.

A. History of public ownership

Public ownership of the line is relatively new. Historically, private railroad

companies owned the tracks and operated service on both the northern and southern

divisions of the line. These companies eventually failed economically. The state

Legislature was concerned that service on the line would be permanently abandoned. To

avoid this outcome, particularly the loss of freight service — a result that was considered

damaging to the economy of the counties through which the line ran — the Legislature

decided that the investment of public monies would be necessary. (Gov. Code, §§ 93001,

93003; see also Historical and Statutory Notes, 37A, pt. 3 West‘s Ann. Gov. Code (2005

ed.) foll. former §§ 93030-93034, p. 296.)

In late 1989, the Legislature created NCRA (Gov. Code, § 93010), giving the

agency the power to acquire necessary property and to operate a railroad on the line, and

also to select a public or private entity to actually operate transportation services on the

line.

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With state funds, NCRA acquired ownership or, on some sections, easement rights

over the railroad line, including the Russian River and Eel River divisions, between 1990

and 1996.1

B. Public funding for repairs and NCRA’s repeated written commitments

regarding CEQA compliance

In 2000 the Legislature appropriated funds to the state Department of

Transportation for allocation as directed by the California Transportation Commission,

including $60 million to NCRA to ―repair and upgrade track to meet Class II (freight)

standards.‖ (Gov. Code, § 14556.40, subd. (a)(32).) Of this, approximately $4 million

was allocated to environmental remediation.

From 2001 to 2006 in various agreements and plans, NCRA committed to CEQA

compliance. In 2001 the state Department of Transportation entered into a funding

master agreement with NCRA to run through 2010, naming a number of state funding

sources, and binding NCRA as recipient to a number of terms, including, for example,

compliance with state auditing rules; California Transportation Commission resolutions

imposing environmental obligations; public contracting requirements; and

nondiscrimination and disabled access requirements.

Significantly, as a condition of funding, one term of the master agreement stated

that ―[c]ompletion of the environmental process (‗clearance‘) for project by recipient

(and/or state if it affects a state facility within the meaning of the applicable statutes) is

required prior to requesting project funds for right-of-way purchase or construction. No

state agency shall request funds nor shall any state agency, board or commission

1 The portion over which NCRA holds an easement for freight service belongs to

another public agency devoted to commuter rail service (now named Sonoma Marin Area

Rail Transit, or SMART), while in turn SMART holds an easement for commuter rail

service over portions of the line owned by NCRA.

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authorize expenditures of funds for any project effort, except for feasibility or planning

studies, which may have a significant effect on the environment unless such a request is

accompanied by an environmental impact report [as] mandated by [CEQA].‖ (Some

capitalization omitted.) Funding was also conditioned on completion of strategic and

capital assessment plans. These also acknowledged that NCRA was required to comply

with CEQA before approving or carrying out the project.

In its 2006 application to the state Department of Transportation for $31 million to

bring the line up to certain standards, NCRA asserted that ―appropriate CEQA and NEPA

documentation will be prepared‖ and various state, federal, and local agencies

approached for permits. Environmental obligations under CEQA and the National

Environmental Policy Act (NEPA; 42 U.S.C. § 4321; et seq.) were repeatedly

acknowledged and fulfillment of those obligations was noted in funding requests.2

A 2006 supplement to the master agreement between the state Department of

Transportation and NCRA described the scope of the work to be financed to include

2 In NCRA‘s 2002 capital assessment report, NCRA acknowledged that much of the

line was ―not in compliance with several state environmental regulations,‖ a circumstance

it also acknowledged eventually led to a 1999 consent decree with various state agencies.

(See post, at p. 10.)

The capital assessment report described environmental compliance concerns,

leading to a recommendation that ―a combined document (CEQA and NEPA) be

prepared and processed . . . that involves facility upgrades, landslide stabilization and

reopening of the line . . . . The type of document recommended is an EIR prepared

pursuant to [CEQA].‖ The capital assessment report also explained that ―NCRA, as a

state created railroad authority, is required to comply with the provisions of . . . CEQA

prior to its decisions concerning . . . carrying out or approving a project.‖

The capital assessment report explained that NCRA had issued a notice of

categorical exemption under CEQA for certain maintenance and repair of the track. But

overall, the report concluded, the use of categorical exemptions under CEQA was

considered unlikely to meet with approval by ―state regulatory, funding, or trustee

agencies.‖ Step-by-step plans for the EIR process were described and consultation with

approximately 30 federal, state, and local agencies was anticipated.

6

various obligations under CEQA, including preliminary project and scoping activities,

draft environmental impact reports (EIRs), and a final EIR.

The NCRA administration and contracting policy manual also called for CEQA

compliance: ―As a public agency, [NCRA] is required to comply with the California

Environmental Quality Act . . . . The Act requires public agencies to adopt a policy that

serves to implement the CEQA for activities within the jurisdiction of the agency.‖

Moreover, the manual represented, ―[NCRA] adopts the Guidelines for the

Implementation of the California Environmental Quality Act; California Code of

Regulations, Title 14, Division 6, Chapter 3, Sections 15000-15387 and Appendices A-K

(‗CEQA Guidelines‘) in its entirety . . . .‖

C. Agreement with private operator

NCRA contracted with private corporations that were to actually operate freight

service on the entire line, ending up in 2006 with an arrangement with NWPCo, the real

party in interest in this litigation. The text of this 2006 ―agreement for the resurrection of

operations upon the Northwestern Pacific railroad line and lease‖ (some capitalization

omitted) designated NCRA as the owner of the line, which was under a statutory duty to

provide freight rail service on the line. NWPCo was designated a franchisee, selected to

operate freight service on the line.

The agreement memorialized NWPCo‘s duty (under a certificate of convenience

and necessity granted to it by the federal Surface Transportation Board) to provide safe,

adequate, and efficient facilities and service. The agreement provided that NWPCo is the

operator responsible for complying with federal and state safety regulations. Under the

agreement, NWPCo leased portions of the Russian River division owned by NCRA and

gained an assignment of portions of the line that NCRA held under an easement, with an

option involving the northern sections of the line. The agreement was subject to a

number of conditions, including ―NCRA having complied with the California

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Environmental Quality Act . . . as it may apply to this transaction.‖ (Italics added.) The

agreement had a term of five years with options to renew.

NCRA was responsible for restoring all portions of the line to a certain level of

―utility.‖ NCRA committed that all available public funds designated for restoration and

improvement would be invested and that ―[i]t shall be solely NCRA‘s responsibility to

use its best efforts to seek public funding to reopen, rehabilitate, restore, and continue the

level of utility of the [line].‖ NWPCo had no obligation to provide service before this

was accomplished. ―If, however, [NWPCo] elects to operate . . . over any portion of the

[line] at a lesser Utility Level,‖ then NWPCo was responsible for maintenance. NWPCo

was to be the sole provider of freight service on the line, would manage and control train

operations after service resumed, and generally would be responsible for maintenance

after service commenced. NWPCo had authority to seek the relevant federal agency‘s

permission to suspend or discontinue service if service were to become ―not economical

in consideration of traffic volumes‖ for it to perform its maintenance obligation, although

NWPCo agreed not to seek authority to suspend or discontinue service without NCRA

approval. ―In the event that NCRA unsuccessfully opposes such suspension or

discontinuance of service it may terminate this Agreement as to any section or any

portion of a section of the . . . line necessary in its sole discretion to restore service to

[that] portion of the . . . line . . . .‖

D. Regulation of the rail line

1. Federal regulatory action and involvement of various state agencies

As defendants and real party in interest stress, the project falls within the

regulatory authority of the federal agency charged with administration of the ICCTA.

Accordingly, in 1996, NCRA filed a notice of exemption with the newly established

Surface Transportation Board (STB) — the successor to the prior federal regulatory

agency, the ICC. The 1996 notice of exemption produced an exemption from ordinary

regulatory certification proceedings and permitted NCRA‘s acquisition of and operation

8

on the line. (See 49 C.F.R. § 1150.41 (2016) [acquisition or operation by class III rail

carrier].)

In 2001, the first private operator selected by NCRA filed its own notice of

exemption with the STB, thereby permitting a change of operators from NCRA to the

private company without further procedures. (See 49 C.F.R. § 1150.31(a)(3) (2016)

[exemption from certification procedure for change in operators].)3

This prior operator was succeeded by real party in interest, NWPCo. In 2007

NWPCo filed its notice of exemption with the STB, permitting the change in operator

along the Russian River division of the line without a certification procedure. (See 49

C.F.R. § 1150.31(a)(3) (2016).) In 2007, plaintiff Friends of the Eel River and others

petitioned the STB to revoke the exemption. The challengers complained that increased

train traffic on the line would, under STB regulations, necessitate federal environmental

review of the planned operation. In rejecting the petition, the STB explained that the

level of frequency of freight service being planned was below the STB‘s regulatory

threshold triggering the need for federal environmental review. It also noted that the

ICCTA favors exemption from regulation whenever appropriate unless the STB has

identified an abuse of market power.

Several other state and federal agencies have taken actions respecting the line. Of

note is safety regulation by the Federal Railroad Administration (FRA), an agency of the

United States Department of Transportation charged with ensuring railroad safety. In

1990, prior to state ownership, the FRA closed portions of the line because of safety

3 After this operator ceased service, but before real party in interest was certified,

the STB was involved in resolving a shipper‘s action for damages against NCRA for

failing to repair the line and reinstitute service, in violation of its duty as a common

carrier. First in 2005, and then in 2007, the STB denied the shipper‘s complaint in part

because the agency accepted NCRA‘s explanation that it lacked adequate funds for

repairs.

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concerns arising from inadequate maintenance. Safety problems continued as the line

suffered from deferred maintenance and inadequate capital investment. The Federal

Emergency Management Agency (FEMA) also became involved after flooding damage

caused additional problems. The FRA worked with the state Public Utilities

Commission, but both agencies, along with FEMA, found that defective track conditions

had not been corrected, and in 1998 the FRA shut down service all along the line. Repairs

and operational improvements were made, and in May 2011, the FRA granted partial

relief from its emergency order, permitting resumption of traffic on the southern portion

of the line at issue in this litigation, but not on the northern section.

In addition, various state entities, including the Department of Fish and Wildlife

and Department of Toxic Substances Control, along with the North Coast Regional Water

Quality Control Board, investigated poor environmental conditions on the line,

documenting that in undertaking repairs, NCRA failed to comply with state

environmental statutes and regulations. They ultimately filed a complaint against NCRA

for violation of the state Fish and Game Code, Health and Safety Code, and Water Code.

In 1999 the parties entered into an elaborate consent decree binding NCRA to cease

certain environmentally destructive practices and to undertake remediation.

2. Proceedings under CEQA

Over a period of years, NCRA, acting as lead agency, undertook the following

procedures under CEQA.

In July 2007, NCRA submitted a notice of preparation of an EIR for the freight

rail project that is the subject of this litigation. The notice described the project as

involving the resumption of freight rail service on the Russian River division of the line,

saying more specifically that (1) NCRA proposed a project to resume freight rail service

on the Russian River division, and (2) that NWPCo, ―NCRA‘s selected rail operator,

proposes to resume the operations of freight service‖ on the line.

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The initial study for the ―Russian River Division Freight Rail Project‖ also

described the project as NCRA‘s proposal to resume freight rail service and again it

pointed to NWPCo‘s involvement as the actual operator that would resume freight

service. The initial study also recounted NCRA‘s proposed ―rehabilitation of its track,

signals, embankments, and bridges,‖ saying that some of these activities may cause a

significant impact on the environment and would be analyzed in the EIR.

After public and agency consultation and scoping meetings, in March 2009 NCRA

issued a draft EIR, again describing the project as NCRA‘s resumption of freight rail

service on the Russian River division, with NWPCo designated as ―NCRA‘s contract

operator.‖ The draft EIR noted that certain rehabilitation along the line had already been

covered under a June 2007 notice of exemption, and that NCRA and NWPCo had been

bound by an earlier consent decree as to that project.4 The draft EIR also noted that

NCRA and NWPCo were bound by the 1999 consent decree brought by the various state

agencies (see ante, at p. 10), requiring them to prepare and implement waste clean-up

plans, ―conduct all rail operations in accordance with applicable environmental laws,‖

and properly dispose of hazardous materials.

The draft EIR stated that NWPCo proposed to resume freight operations, and that

resumption of rail service would serve statewide air quality goals and reduce diesel truck

4 In 2007 NCRA had filed a notice of categorical exemption under CEQA for a

separate project contemplating maintenance and repair activities along the line. The City

of Novato sought mandamus and declaratory relief against NCRA and other agencies.

The Court of Appeal and the parties agree that the City of Novato‘s lawsuit was directed

at the categorical exemption; the record does not appear to contain the complaint. Under

the parties‘ consent decree of November 2008, NCRA admitted the court‘s jurisdiction.

The parties bound themselves to various mitigation measures within the City of Novato,

and to follow CEQA in accomplishing the work. (The decree also referred to NCRA‘s

ongoing preparation of an EIR under CEQA for the projected reopening of freight service

— that is, the project involved in the present litigation.)

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traffic, among other things. It acknowledged that ―NCRA, acting as the CEQA lead

agency, has a duty pursuant to CEQA guidelines to neither approve nor carry out a

project as proposed unless the significant environmental effects have been mitigated to

an acceptable level, where possible.‖ (Italics added.) The draft EIR provided a lengthy

analysis of potential environmental impacts of resuming freight service, including

consideration of rehabilitation of the line, cumulative impacts, and potential mitigation

measures.

After further hearings, a second draft EIR was filed in November 2009.

Comments were received in 2010 and the final EIR was released in March 2011. The

final EIR again summarized the project as being to resume freight service on the Russian

River division of the line, noting that ―[r]epairs to the line to bring the rail line into

conformance with FRA . . . [s]tandards have been completed for most of the line, and it is

now ready to resume service to Windsor.‖ The project also was said to include four

specific, rather limited repair and construction projects.

The final EIR rebutted comments claiming that the project actually included the

northern or Eel River portion of the line — then consisting of unusable tracks. It also

declared that rehabilitation activities covered by the 2007 notice of exemption were

considered a separate project. Also appearing were rebuttal to concerns about the

economic viability of the project, mitigation measures, and disposal of hazardous

materials and waste.

An addendum to the EIR responding to additional comments was attached in May

2011. Joint regulatory authority was noted: ―The NCRA plans and procedures as they

relate to NWPCo. include, but are not limited to, rules and regulations of the Federal

Railroad Administration, the Surface Transportation Board, federal, state and local laws,

rules and regulations where applicable, the 2006 Lease by and between NCRA and

NWPCo., the Operating Agreement with SMART, and Easement rights granted to and by

NCRA. NWPCo. maintains certain obligations under each of these entities, and will

12

continue to maintain such obligations while operating on the line. If plans and

procedures change over time, the revisions will be subject to the appropriate regulatory

and environmental review. The agreement/contract between NCRA and NWPCo will

reflect the revisions, as appropriate.‖

In June 2011, NCRA‘s board of directors (Board) adopted a resolution certifying

the final EIR and approving the project, again defined as the resumption of limited freight

rail service on the so-called Russian River division of the line, along with the four

specified rehabilitation, construction, and repair activities.

According to the resolution, the final EIR disclosed that the project posed

significant or potentially significant adverse environmental impacts that may be

mitigated; that with certain exceptions the significant adverse environmental impacts had

been eliminated or reduced to insignificance; and as to certain impacts, that additional

mitigation was infeasible. Having balanced the risks and benefits, the Board determined

that the benefits outweighed the unavoidable adverse environmental effects.

The Board made a finding that environmental impacts of development on the Eel

River division of the line properly had been omitted from consideration because the

Board had no intention of resuming service in that division. It stated: ―Given that there

are no financial resources available to resume services in the [Eel River division], the

Board does not intend to operate [there].‖

It appears that limited freight service has resumed on the southern or Russian

River division of the line.

E. Litigation

In July 2011, plaintiffs Friends of the Eel River and Californians for Alternatives

to Toxics filed separate petitions for writ of mandate, naming NCRA as defendant and

NWPCo as real party in interest. Friends of the Eel River sought alternative and

peremptory writs of mandate directing NCRA to set aside its findings and certification of

the EIR and approval of the project and directing its compliance with CEQA, as well as a

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stay and preliminary and permanent injunctions preventing NCRA and its agents from

―taking any action to implement, or further approve, or construct the Project, pending full

compliance with the requirements of CEQA and the CEQA Guidelines,‖ and restraining

real party in interest from ―taking any action to implement or construct the Project,

pending full compliance with the requirements of CEQA and the CEQA Guidelines.‖

Friends of the Eel River alleged two causes of action, both for violations of CEQA.

These challenged the adequacy of the EIR and of the mitigation measures and

alternatives that had been considered and adopted, and the adoption of findings assertedly

not supported by substantial evidence. The challenge was based in part on assertedly

inadequate consideration of hazardous materials and impacts on water quality and

threatened species, and in part on the absence of consideration of the northern or Eel

River portion of the railroad.

Californians for Alternatives to Toxics petitioned for a writ of mandate ordering

NCRA to set aside certain findings, the certification of the final EIR, and approval of the

project and instead ―to follow California regulations and statutes, including [CEQA], in

any review of and new decision for the Russian River Division Freight Rail Project.‖ It

sought to enjoin NCRA and NWPCo ―from engaging in any activity pursuant to the

Russian River Division Freight Rail Project until the Project complies with all applicable

California regulations and statutes, including requirements of [CEQA].‖

In all, Californians for Alternatives to Toxics alleged 10 causes of action for

violations of CEQA. It alleged various inadequacies in the information provided in the

projects descriptions and EIRs; inadequate response to public comment; failure to

evaluate the environmental impact of various levels of freight service and of track repair

and rehabilitation on water, soil, air, and other resources; inadequate consideration of

mitigation measures and alternatives; and improper findings of ―overriding

considerations‖ not supported by substantial evidence. The petition also asserted that

efforts to reopen the rail line in the Eel River division threatened serious environmental

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harm, especially harm to water in rivers and coastal areas. An 11th cause of action

incorporated the prior allegations and alleged that irreparable injury to natural resources

constituted a basis for injunctive relief. The petition sought an order that NCRA set aside

its certification of the final EIR and its findings and approvals, that it follow CEQA, and

that NCRA and NWPCo be enjoined from ―engaging in any activity pursuant to the

Russian River . . . Project until the Project complies with . . . [CEQA].‖

At this point NCRA concluded that further challenges should be met with the

argument that any application of CEQA to the project, i.e., the resumption of freight

service and the specified rehabilitation work, was preempted by the ICCTA.

The NCRA removed the matters to federal court, arguing the claims were

preempted. The federal court found the dispute was not subject to so-called complete

preemption, that is, plaintiffs were not attempting to litigate a federal cause of action in

the guise of a state cause of action.5 In addition, it determined that a case is not subject to

removal solely on the basis of a federal defense, including the defense of preemption.

Accordingly the federal court remanded the matters to state court.

In April 2013, the NCRA Board issued a resolution rescinding its resolution of

June 2011, ―to clarify that the NCRA did not have before it a ‗project‘ as that term is

used in [CEQA] and did not approve a project when it certified the EIR that was the

5 The court explained that the term ― ‗ ―[c]omplete preemption‖ is a short-hand for

the doctrine that in certain matters Congress so strongly intended an exclusive federal

cause of action that what a plaintiff calls a state law claim is to be recharacterized as a

federal claim.‘ ‖ The court determined that the ICCTA does not provide the exclusive

cause of action for plaintiffs‘ CEQA claims. On the contrary, the court observed, the

federal act‘s preemption provision does not purport to displace any and all state law

causes of action, quoting Fayard v. Northeast Vehicle Services, LLC (1st Cir. 2008) 533

F.3d 42, 47: ― ‗No one supposes that a railroad sued under state law for unpaid bills by a

supplier of diesel fuel or ticket forms can remove the case based on complete preemption

simply because the railroad is subject to the ICCTA.‘ ‖

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subject of the Resolution. More specifically, NCRA rescinds any word, phrase or section

of the Resolution to the extent that it purported to approve a project for the resumption of

railroad operations . . . .‖ The Board acknowledged that the EIR process had been a

valuable source of information for it and for the public, but that the EIR was not legally

required as a condition of operation of the line. Rather, ―[t]he ICCTA preempts CEQA‘s

application over railroad operations on the line‖ and once the Board entered the lease

with NWPCo in 2006, ―no further discretionary actions or approvals were necessary by

NCRA as a condition to NWPCo‘s right to operate the line‖; that after the STB approved

NWPCo‘s application for an exemption to operate the line in August 2007, ―no further

action or approval was required by the STB as a condition to NWPCo‘s right to operate

the line‖; that after the FRA partially lifted its emergency order in May 2011, ―no further

action or approval was required by the [FRA], or any other state or federal agency, as a

condition to NWPCo‘s right to operate the line, and NWPCo had the legal right to

immediately commence operations at that time.‖

With respect to its representations in its 2006 application for state funds, resulting

in appropriation to NCRA of $31 million for track repair and restoration (see ante, at

pp. 5-6), the rescission resolution stated that the Board mistakenly had believed it must

prepare an EIR, but that in any event, the appropriated money had been exhausted on the

track repair project that was the subject of the categorical exemption. It averred that

―well before . . . the [FRA‘s] partial lifting of [its emergency order], the TCRP [traffic

congestion relief program]-funded repair work had been substantially completed and all

TCRP funds allocated by the CTC [California Transportation Commission] to NCRA for

the repair work had been used; . . . [¶] [and] no TCRP funds were allocated to NCRA by

the CTC for railroad operations on the line, nor were any TCRP funds used for actual

railroad operations.‖

As for NCRA‘s operating and lease agreement with NWPCo, the Board

acknowledged that ―the lease agreement contains a provision that NCRA will comply

16

with CEQA ‗as it may apply to this transaction‘ (meaning the NCRA‘s entry into the

lease agreement), but the lease transaction was not challenged on CEQA grounds within

the statutory time period, thus obviating NCRA‘s obligation to determine whether CEQA

would have attached to the lease transaction.‖

The Board noted that freight rail operations had resumed in July 2011.

Once the matters returned from federal to state court, NCRA and NWPCo

demurred on the ground that the challenge under CEQA was preempted by the ICCTA

and was time-barred. The trial court agreed with them that the application of CEQA was

preempted, but overruled the demurrer because it found NCRA judicially estopped from

pursuing that defense in light of positions it had taken in litigation ending in the consent

decrees.

NCRA and NWPCo thereafter filed a motion to dismiss for mootness in light of

the Board‘s rescission of its earlier resolution. The matter proceeded to a contested

hearing before a different judicial officer. That officer reconsidered the estoppel point

and rejected it, albeit agreeing with the first judicial officer that the preemption defense

applied. The court entered orders denying the petitions for writ of mandate.

The Court of Appeal affirmed. The court held initially that the controversy was

not moot. It also concluded that the ICCTA was broadly preemptive of CEQA, and that

the so-called market participant doctrine did not defeat preemption. It rejected plaintiffs‘

view that principles of state sovereignty require that the ICCTA be interpreted to spare

from preemption the state‘s control over NCRA, the state‘s own subdivision. The Court

of Appeal also held that plaintiffs lacked standing to premise their challenges on the

agreement between NCRA and NWPCo. Finally, it rejected their judicial estoppel

argument.

In its opinion, the Court of Appeal rejected the decision of another Court of

Appeal, namely Town of Atherton v. California High-Speed Rail Authority (2014) 228

Cal.App.4th 314, which had addressed a route-selection element of California‘s high-

17

speed rail project and, principally relying on a market participant theory, had concluded

that there was no ICCTA preemption of CEQA in that case.

Friends of the Eel River and Californians for Alternatives to Toxics petitioned for

review, challenging the Court of Appeal‘s analysis and conclusion on the preemption

issue. (The issues of mootness and judicial estoppel are not preserved for our review.)

II. Discussion

A. Introduction

The Court of Appeal found that the ICCTA preemption language is broad and

concluded that ―CEQA is preempted by federal law when the project to be approved

involves railroad operations.‖ Plaintiffs, by contrast, rely on presumptions governing the

proper analysis of federal preemption language to contend that the ICCTA does not

preempt application of CEQA in this case.

We begin with general preemption principles, including certain presumptions.

Because the question before us is fundamentally one of statutory construction, we next

turn to the text of the ICCTA preemption provision, the overall function of the ICCTA,

and the unifying and deregulatory purpose disclosed by legislative history of the federal

law. We observe that the ICCTA continues and strengthens a federal approach calling

for a national as opposed to balkanized rail system. It also is apparent that the ICCTA

completes a congressional trend in favor of relieving rail transportation of regulation and

substituting the market as a dominant force.

We next consider the preemptive impact of the ICCTA, especially as to state

environmental regulation. We briefly outline the CEQA scheme that the Court of

Appeal, along with NCRA and NWPCo, contend is preempted here.

As the Court of Appeal correctly pointed out, the national system of railroads is of

peculiarly federal, not state, concern. The ICCTA is both unifying and deregulatory; it

would undermine both values if states could compel the rail industry to comply with

regulation of railroads that conflicted with federal law, or even to comply with

18

supplementary regulation of railroads on a state-by-state basis. We acknowledge that, at

least as to privately owned railroads, state environmental permitting or preclearance

regulation that would have the effect of preventing a private railroad from operating

pending CEQA compliance would be categorically preempted.

As we will explain, federal courts — even those that take a relatively narrow view

of the preemption language of the ICCTA — as well as the STB agree in this respect. In

the ordinary regulatory setting in which a state seeks to govern private economic conduct,

applying CEQA to condition state permission to go forward with railroad operations

would be preempted.

This conclusion, however, does not resolve the application of CEQA to NCRA.

The ICCTA preempts solely regulation of rail transportation, and we will discuss whether

it actually constitutes regulation when the state is the owner of the rail line and, by state

law, prescribes the process by which its own subsidiary agency will make decisions

concerning the resumption of rail service along a rail line. We will consider whether,

when the state establishes the general law according to which the state‘s own subsidiaries

are to use the funds and powers allocated by the state — including for railroad projects —

this constitutes not regulation but instead self-governance on the part of the state. We

will conclude that CEQA may be considered a matter of self-governance in this setting —

the control exercised by the state over its own subdivision.

We acknowledge that, although a CEQA process as applied to a private railroad

might also be considered to reflect self-governance — in the sense that the state is

governing how its subsidiary governmental entity makes development decisions

concerning developments actually carried out by other, private owners — such an

application of CEQA to a private line nonetheless would be preempted. Yet we believe

that the analysis is different when the state is the owner of the railroad. We will discuss

United States Supreme Court authority in support of this view, primarily the presumption

that in the absence of unmistakably clear language, courts assume that congressional

19

preemption provisions are not intended to upset the usual constitutional balance of state

and federal powers. We also will discuss, by analogy, the so-called market participant

doctrine, relying on it for its presumption that, in connection with state market activities

that are not regulatory, the state ordinarily has the same freedom of action as a private

entity. And we will address the apparent freedom of action accorded to owners over

environmental considerations presented by track repair and increased levels of service on

existing railroad lines.

Because the present project appears to fall within that area of freedom of action,

applying CEQA to NCRA‘s decisions on the project appears not to be regulation by the

state but instead self-governance by the owner. As we will explain, because we see no

indication in the language of the ICCTA that Congress intended to preempt such self-

governance in that field, we will conclude that application of CEQA to NCRA in the

present case is not preempted.

Finally, we will discuss the application of principles developed in this opinion to

NWPCo, the private lessee that operates the freight service on the railroad.

B. Federal preemption

1. General principles

―The Supremacy Clause provides that ‗the Laws of the United States‘ (as well as

treaties and the Constitution itself) ‗shall be the supreme Law of the Land . . . any Thing

in the Constitution or Laws of any state to the Contrary notwithstanding.‘ Art. VI, cl. 2.

Congress may consequently pre-empt, i.e., invalidate, a state law through federal

legislation. It may do so through express language in a statute. But even where . . . a

statute does not refer expressly to pre-emption, Congress may implicitly pre-empt a state

law, rule, or other state action.‖ (Oneok, Inc. v. Learjet, Inc. (2015) 575 U.S. ___ [135

S.Ct. 1591, 1594-1595] (Oneok); see Quesada v. Herb Thyme Farms, Inc. (2015) 62

Cal.4th 298, 307-308 (Quesada).)

20

When express preemption is claimed, the court‘s ―task is to ‗identify the domain

expressly pre-empted.‘ [Citation.] To do so, we focus first on the statutory language,

‗which necessarily contains the best evidence of Congress‘ pre-emptive intent.‘

[Citation.]‖ (Dan‟s City Used Cars, Inc. v. Pelkey (2013) 569 U.S. ___ [133 S.Ct. 1769,

1778].)

Indeed, in all preemption cases, whether express or implied preemption is claimed,

the fundamental question regarding the scope of preemption is one of congressional

intent. (Quesada, supra, 62 Cal.4th at p. 308; Brown v. Mortensen (2011) 51 Cal.4th

1052, 1059-1060; see Wyeth v. Levine (2009) 555 U.S. 555, 565; Lorillard Tobacco Co.

v. Reilly (2001) 533 U.S. 525, 541-542.)

Implied preemption exists under defined circumstances. First, there may be

― ‗field‘ preemption‖ when ―Congress . . . intended ‗to foreclose any state regulation in

the area,‘ irrespective of whether state law is consistent or inconsistent with ‗federal

standards.‘ [Citation.] In such situations, Congress has forbidden the State to take action

in the field that the federal statute pre-empts.‖ (Oneok, supra, 575 U.S. ___ [135 S.Ct. at

p. 1595], italics omitted.) Alternatively, there may be ―conflict‖ or ―obstacle‖

preemption. These are present when ― ‗compliance with both state and federal law is

impossible,‘ or where ‗the state law ―stands as an obstacle to the accomplishment and

execution of the full purposes and objectives of Congress.‖ ‘ [Citation.] In either

situation, federal law must prevail.‖ (Ibid.; see Quesada, supra, 62 Cal.4th at p. 308.)

Implied preemption may exist even in company with an express preemption

clause. (Sprietsma v. Mercury Marine (2002) 537 U.S. 51, 65 [in context of conflict

preemption].)

2. Presumptions

There is a presumption that protects against undue federal incursions into the

internal, sovereign concerns of the states. The United States Supreme Court expressed

the rule in Gregory v. Ashcroft (1991) 501 U.S. 452 (Gregory) and Nixon v. Missouri

21

Municipal League (2004) 541 U.S. 125 (Nixon). That case law posits a presumption that

Congress would not alter the balance between state and federal powers without doing so

in unmistakably clear language. (Nixon, supra, 541 U.S. at pp. 140-141; Gregory, supra,

501 U.S. at pp. 459-461; Sheriff v. Gillie (2016) 578 U.S. ___ [136 S.Ct. 1594, 1602]

(Gillie); City of Los Angeles v. County of Kern (2014) 59 Cal.4th 618, 631 [―Principles of

federalism dictate a distinct approach to the construction of statutes impinging on state

sovereignty, one designed to ensure courts do not assume an incursion where none was

intended‖].)

A related presumption arises in the context of the so-called market participant

doctrine. Federal law ordinarily preempts only state regulation of a defined field. Not all

state law constitutes regulation. There may be no regulation and hence no preemption in

circumstances when the state is acting in the marketplace in a proprietary rather than

regulatory mode. This doctrine ―is not a wholly freestanding doctrine, but rather a

presumption about congressional intent.‖ (Engine Manufacturers Ass‟n v. South Coast

Air Quality Management Dist. (9th Cir. 2007) 498 F.3d 1031, 1042 (Engine

Manufacturers).) Courts presume Congress does not intend to reach and preempt a

state‘s proprietary arrangements in the marketplace in the absence of evidence of such an

expansive congressional intent. (Building & Constr. Trades Council v. Associated

Builders & Contractors of Mass./R.I., Inc. (1993) 507 U.S. 218, 227, 231, 233 (Boston

Harbor); see American Trucking Ass‟ns, Inc. v. City of Los Angeles (2013) 569 U.S. ___

[133 S.Ct. 2096, 2102-2103] (American Trucking); Engine Manufacturers, supra, 498

F.3d at p. 1042.)

C. The ICCTA

We must apply these preemption principles to the ICCTA. But first we must

understand that enactment.

22

1. The federal law.

The ICCTA contains an express preemption provision, which provides: ―The

jurisdiction of the STB over — [¶] (1) transportation by rail carriers, and the remedies

provided in this part with respect to rates, classifications, rules (including car service,

interchange, and other operating rules), practices, routes, services, and facilities of such

carriers; and [¶] (2) the construction, acquisition, operation, abandonment, or

discontinuance of spur, industrial, team, switching, or side tracks, or facilities, even if the

tracks are located, or intended to be located, entirely in one State, [¶] is exclusive.

Except as otherwise provided in this part, the remedies provided under this part with

respect to regulation of rail transportation are exclusive and preempt the remedies

provided under Federal or State law.‖ (49 U.S.C. § 10501(b).)

To understand this preemption provision, we must gain a general understanding of

the ICCTA and must understand some of its key terms. The term ― ‗rail carrier‘ means a

person providing common carrier rail transportation . . . .‖ (49 U.S.C. § 10102(5).) The

term ― ‗transportation‘ includes [¶] (A) a locomotive, car, vehicle, vessel, warehouse,

wharf, pier, dock, yard, property, facility, instrumentality, or equipment of any kind

related to the movement of passengers or property, or both, by rail, regardless of

ownership or an agreement concerning use; and [¶] (B) services related to that

movement, including receipt, delivery, elevation, transfer in transit, refrigeration, icing,

ventilation, storage, handling, and interchange of passengers and property . . . .‖

(Id., § 10102(9).)

As for the general outlines of the ICCTA, it requires carriers to establish

reasonable rates, rules, and practices related to transportation or services (49 U.S.C.

§ 10702); prohibits discriminatory pricing (id., § 10741); and establishes common carrier

obligations requiring provision of transportation or services on reasonable request.

(Id., § 11101; see Decatur County Commissioners v. Surface Transp. Bd. (7th Cir. 2002)

308 F.3d 710, 715 (Decatur) [―A railroad may not refuse to provide services merely

23

because to do so would be inconvenient or unprofitable. [Citation.] The common carrier

obligation, however, is not absolute‖].) The act prohibits rail carriers from improper

obstruction of through traffic or freight (49 U.S.C. § 10744), and prohibits state or local

tax discrimination against rail property. (Id., § 11501.)

The ICCTA assigns administrative and regulatory duties to the STB. (49 U.S.C.

§§ 1301- 1302.) The STB ―has jurisdiction over transportation by rail carrier.‖ (Id.,

§ 10501(a)(1).) The STB‘s jurisdiction applies even to intrastate transportation so long as

it is ―part of the interstate rail network.‖ (Id., § 10501(a)(2)(A).) A number of

transactions require approval from the STB. The ICCTA provides for STB licensing of

railroad construction and operations (id., § 10901), as well as for STB authorization to

abandon a rail line or discontinue service. (Id., § 10903; but see GS Roofing Products

Co., Inc. v. Surface Transp. Bd. (8th Cir. 2001) 262 F.3d 767, 773 [carriers unilaterally

may temporarily discontinue service by announcing embargo]; see also Decatur, supra,

308 F.3d 710 [20-month embargo held reasonable].) The STB has authority to prescribe

routes and certain rates (49 U.S.C. § 10705) and to adjudicate claims of unreasonable

rates arising from market dominance. (Id., § 10707.) The act provides for STB approval

of railroad mergers and consolidation (id., §§ 11323-11324), including leases or contracts

to operate property of another rail carrier, acquisition of control of a rail carrier or nonrail

carrier, and acquisition by a rail carrier of trackage rights over a line owned or operated

by another. (Ibid.)

As relevant to the present case, a certificate from the STB is required for rail

carriers to construct or operate on new or extended lines, and noncarriers require a

certificate authorizing acquisition or operation of a line. (49 U.S.C. § 10901(a).) At the

same time, the STB must grant such certificates unless the request is ―inconsistent with

the public convenience and necessity.‖ (Id., § 10901(c).)

STB regulations also govern the application of federal environmental protection

law to railroad projects. (49 C.F.R §§ 1105.1-1105.12 (2016); see especially id.,

24

§ 1105.6 [environmental impact statements normally are required for rail construction

projects, with specified exceptions; STB environmental assessments are required for

abandonment, discontinuance of passenger or freight services (with exceptions) and for

acquisitions, leases, or mergers resulting in changes exceeding certain thresholds; the

STB has authority to modify requirements for certain proceedings]; see also Alaska

Survival v. Surface Transp. Bd. (9th Cir. 2013) 705 F.3d 1073, 1078 (Alaska Survival)

[when determining whether to authorize construction of a new extension of a railroad

line, the STB considers the environmental record]; 3 West‘s Fed. Administrative Prac.

(2016) Transportation, ch. 53, Surface Transportation Board, § 5390.) Other federal

agencies, including the FRA, also participate along with the STB in environmental

regulation of the rail industry, especially with regard to construction of new railroad

lines. (Alaska Survival, supra, 705 F.3d at p. 1078; see also California High-Speed Rail

Authority, Exemption (STB, June 13, 2013, No. FD 35724) 2013 WL 3053064, p. * 22.)

2. Purpose and history of the ICCTA

The ICCTA both unifies the rail industry into a national system subject to unitary

federal regulation, and also deregulates the industry. The deregulatory and unifying

purpose of the ICCTA appears in its history. Preemption of state regulation of rail

transportation has a long history that is part of a federal effort to establish uniform

regulation of the rail industry across state lines. More recent enactments (including the

Staggers Rail Act of 1980 (Staggers Act) and the current enactment, the ICCTA), achieve

broad deregulation at the federal level as well, while maintaining preemption of state

remedies.

The ICCTA arose in the following context. In the 19th century, railroad owners

achieved monopolies that were oppressive to other businesses and distorted the market

for freight rates and services. (See H.R.Rep. No. 104-311, 1st Sess., p. 90 (1995);

Sen.Rep. No. 104-176, 1st Sess., p. 2 (1995); Eldredge, Who‟s Driving the Train?

Railroad Regulation and Local Control (2004) 75 U.Colo. L.Rev. 549, 557-558

25

(hereafter Eldredge).) In response, Congress adopted the Interstate Commerce Act of

1887 to regulate rates and services in the rail industry (as well as the motor carrier

industry) and resolve some of these distortions on a national basis. (See H.R.Rep.

No. 104-311, supra, p. 90; Sen.Rep. No. 104-176, supra, p. 2; Eldredge, supra, at

p. 558.) Even without an express preemption clause in that law, the high court concluded

that state court remedies for matters regulated by this earlier federal act were preempted.

(Chicago & N. W. Tr. Co. v. Kalo Brick & Tile Co. (1981) 450 U.S. 311, 318 (Chicago &

N. W.) [― ‗[I]t would be inconsistent with [federal] policy‘ . . . ‗if local authorities

retained the power to decide‘ whether the carriers could do what the Act authorized them

to do‖]; Texas & Pac. Ry. v. Abilene Cotton Oil Co. (1907) 204 U.S. 426, 440-441 (Texas

& Pac.) [inconsistency between jurisdictions would destroy the uniformity and equality

in rates that the enactment was intended to achieve].)

Although the earlier act was intended to achieve nationwide uniformity, it came to

be seen as also having imposed an onerous regulatory burden on the industry that

Congress believed should be lifted. (H.R.Rep. No. 104-311, supra, pp. 90-91.) In an

effort to improve the railroads‘ ability to compete economically, Congress began to

relieve the industry of what it termed a ―Kafkaesque regulatory regime.‖ (Id., at p. 91.)

Congress accordingly adopted the Staggers Act, the precursor to the ICCTA. (Pub.L.

No. 96-448, supra, 94 Stat. 1895; see H.R.Rep. No. 104-311, supra, p. 91; Eldredge,

supra, 75 U.Colo. L.Rev. at p. 558.)

The Staggers Act ―deregulated most railroad rates, legalized railroad shipping

contracts, simplified abandonments, and stimulated an explosion of service and

marketing alternatives . . . .‖ (H.R.Rep. No. 104-311, supra, p. 91.) An important

deregulatory feature was a provision giving the regulatory agency, the ICC, the

administrative power to accomplish additional deregulation through its exemption power.

(Ibid.; G. & T. Terminal Packaging Co., Inc. v. Consolidated Rail Corp. (3d Cir. 1987)

830 F.2d 1230, 1234 (G. & T. Packaging) [calling the exemption authority a ―principal

26

component‖ of the enactment].) This administrative power to afford exemption from

regulation was ―employed aggressively,‖ producing what was viewed as a ―renaissance in

the railroad industry.‖ (H.R.Rep. No. 104-311, supra, p. 91.)

With the Staggers Act, Congress not only deregulated, but also made its earlier

implied preemptive purpose express. In language that basically parallels that appearing

in 49 United States Code section 10501 today, the Staggers Act provided that ―[t]he

jurisdiction of the [ICC] . . . over transportation by rail carriers, and the remedies

provided in this title with respect to the rates, classifications, rules, and practice of such

carriers, is exclusive.‖ (49 U.S.C. former § 10501(d), added by Pub.L. No. 96-448 (Oct.

14, 1980) 94 Stat. 1895, 1915.) This language was intended to ―assure uniform

administration of the regulatory standards of the Staggers Act.‖ (H.R.Rep. No. 104-422,

1st Sess., p. 167 (1995).) It was held to go beyond the question of jurisdiction, and to

indicate that with respect to rail regulation, the Staggers Act remedies themselves were

exclusive, displacing state remedies. (G. & T. Packaging, supra, 830 F.2d at p. 1234; see

also H.R.Rep. No. 96-1430, 2d Sess., p. 106 (1980), reprinted in 1980 U.S. Code Cong.

& Admin. News 4110, 4138 [―The remedies available against rail carriers with respect to

rail rates, classifications, rules and practices are exclusively those provided by the

Interstate Commerce Act . . . and any other federal statutes which are not inconsistent

with the . . . Act. No state law or federal or state common law remedies are available‖].)

State common law remedies with respect to matters such as reasonable rates could not be

substituted to fill a gap when the ICC had decided in favor of deregulation. (G. & T.

Packaging, supra, 830 F.3d at p. 1235.) The statute did provide a limited exception to

the exclusive remedy provision, however, that permitted states to obtain ICC certification

to enforce the federal act as to purely intrastate transportation. (H.R.Rep. No. 104-311,

supra, p. 83.) There was also a disclaimer explaining that ordinary state police powers

were not preempted.

27

The Staggers Act relieved the industry of heavy federal regulation, but Congress

evidently believed further deregulation was called for. Congress ―recogni[zed] that the

surface transportation industry is competitive and that few economic regulatory activities

are required to maintain a balanced transportation network.‖ (H.R.Rep. No. 104-311,

supra, p. 82, italics added.) Accordingly in 1995, Congress adopted the current

regulatory scheme — the ICCTA. (49 U.S.C. § 10101 et seq.) According to a

congressional report on the bill, the ICCTA ―builds on the deregulatory policies that have

promoted growth and stability in the surface transportation sector. For the rail industry,

only regulations are retained that are necessary to maintain a „safety net‟ or „backstop‟

of remedies to address problems of rates, access to facilities, and industry restructuring.

. . .‖ (H.R.Rep. No. 104-311, supra, p. 93, italics added.)

The express, statutorily defined policy of the ICCTA is ―to minimize the need for

Federal regulatory control over the rail transportation system‖ (49 U.S.C. § 10101(2)),

―to reduce regulatory barriers to entry into and exit from the industry‖ (id., § 10101(7)),

to promote a ―sound rail transportation system with effective competition‖ (id.,

§ 10101(4)), and to permit the market to establish reasonable rates. (Id., § 10101(1); see

Fayus Enterprises v. BNSF Railway (D.C. Cir. 2010) 602 F.3d 444, 450 (Fayus)

[commenting that alterations in the ICCTA were ―entirely in a deregulatory direction‖].)

The power vested in the governing agency to afford additional exemptions from

regulation on an administrative basis was enhanced; now the agency has a statutory duty

to afford exemptions ―to the maximum extent consistent with [the ICCTA].‖ (49 U.S.C.

§ 10502(a); see H.R.Rep. No. 104-311, supra, p. 96 [also noting the elimination of some

former restrictions on the granting of exemptions that were viewed as unnecessary in

light of the functioning of the market].) This provision is seen as streamlining the

regulatory process. (Alaska Survival, supra, 705 F.3d at p. 1078.) Regulations provide

for routine exemption from acquisition and operations certificate requirements (see 49

28

C.F.R. § 1150.31 (2016)) — which is what occurred in the present case both for NCRA

and NWPCo.

Still, the ICCTA does provide for federal regulation, including ―Federal regulatory

oversight of line constructions, line abandonments, line sales, leases, and trackage rights,

mergers and other consolidations . . . , antitrust immunity for certain collective activities

. . . , competitive access, financial assistance, feeder line development, emergency service

orders, and recordation of equipment liens.‖ (Sen.Rep. No. 104-176, supra, p. 7.)

As for the preemption provision itself, as noted, former language stating the

exclusive jurisdiction of the federal agency to provide remedies was largely retained, but

the preemptive force of the statute was enhanced. Additional preemptive language was

added in the ICCTA, specifically this sentence: ―Except as otherwise provided in this

part, the remedies provided under this part with respect to regulation of rail transportation

are exclusive and preempt the remedies provided under Federal or State law.‖ (49 U.S.C.

§ 10501(b).) With this language, the limited regulatory role of the states that had been

retained by the Staggers Act was eliminated. Congressional reports announced that

―[t]he bill is intended to standardize all economic regulation (and deregulation) of rail

transportation under Federal law, without the optional delegation of administrative

authority to State agencies to enforce Federal standards, as provided in the relevant

provisions of the Staggers Rail Act.‖ (H.R.Rep. No. 104-311, supra, p. 95, italics added.)

The unifying intent of the statute remains vital. (Sen.Rep. No. 104-176, supra, p. 6 [―The

railroad system in the United States is a nationwide network. The hundreds of rail

carriers that comprise the railroad industry rely on a nationally uniform system of

economic regulation. Subjecting rail carriers to regulatory requirements that vary among

the States would greatly undermine the industry‘s ability to provide the ‗seamless‘

service that is essential to its shippers and would w[e]aken the industry‘s efficiency and

competitive viability‖].) Yet it was acknowledged that outside the regulated field, states

29

―retain the police powers reserved by the Constitution.‖ (H.R.Rep. No. 104-311, supra,

p. 96.)

D. Preemptive impact of the ICCTA on state regulation

To review, we have seen that under 49 U.S.C. section 10501, the STB has

exclusive jurisdiction over transportation by rail carrier, including the movement of

goods and all services related to that movement. Its remedies are exclusive and expressly

preempt state remedies ―with respect to regulation of rail transportation.‖ (Id.,

§ 10501(b).)

There is no dispute that NCRA and NWPCo are rail carriers within the meaning of

the ICCTA and have received exemptions from certificate requirements, permitting

eventual operation of services. Nor is there any dispute that their operation of freight

service on the rail line in this case is ―rail transportation‖ and is within the jurisdiction of

the STB.

1. CEQA

To understand whether application of CEQA to the rail carriers in this case would

constitute regulation of rail transportation within the terms of the ICCTA, we must

review some essential features of CEQA.

CEQA embodies a central state policy to require state and local governmental

entities to perform their duties ―so that major consideration is given to preventing

environmental damage.‖ (Pub. Resources Code, § 21000, subd. (g); see Laurel Heights

Improvement Assn. v. Regents of University of California (1988) 47 Cal.3d 376, 390

(Laurel Heights).)

CEQA prescribes how governmental decisions will be made when public entities,

including the state itself, are charged with approving, funding — or themselves

undertaking — a project with significant effects on the environment. (Pub. Resources

Code, § 21065, subd. (a) [defining a ―project‖ to include ―activit[ies] directly undertaken

by any public agency‖]; see also id., §§ 21100 [state agency procedures], 21102 [state

30

agency generally cannot request state funds for a project which may have a significant

effect on the environment without an EIR], 21104 [responsibilities of state lead agencies],

21105 [state agency EIRs], 21151 [local agencies]; Sunset Sky Ranch Pilots Assn. v.

County of Sacramento (2009) 47 Cal.4th 902, 907; Mountain Lion Foundation v. Fish &

Game Com. (1997) 16 Cal.4th 105, 119 (Mountain Lion Foundation); Laurel Heights,

supra, 47 Cal.3d at pp. 390-391.)6

The Legislature, in enacting CEQA, imposed certain principles of self-government

on public entities. In other words, CEQA is a legislatively imposed directive governing

how state and local agencies will go about exercising the governmental discretion that is

vested in them over land use decisions. (See California Building Industry Assn. v. Bay

Area Air Quality Management Dist. (2015) 62 Cal.4th 369, 383 [emphasizing CEQA‘s

function in self-government]; Citizens of Goleta Valley v. Board of Supervisors (1990) 52

Cal.3d 553, 564 (Citizens of Goleta Valley) [same]; Laurel Heights, supra, 47 Cal.3d at

p. 392 [same]; see also Mountain Lion Foundation, supra, 16 Cal.4th at p. 112 [CEQA

applies to projects calling for the lead agency to ―use its judgment in deciding whether

and how to carry out the project‖]; Western States Petroleum Assn. v. Superior Court

(1995) 9 Cal.4th 559, 566-567 [CEQA prescribes rules under which state and local

agencies are to exercise quasi-judicial as well as quasi-legislative discretion].)

CEQA review is undertaken by a lead agency, defined as ―the public agency

which has the principal responsibility for carrying out or approving a project which may

have a significant effect upon the environment.‖ (Pub. Resources Code, § 21067, italics

added.) The lead agency‘s function in the environmental review process is so important

6 Certain projects are exempt from CEQA, including passenger or commuter rail

services (Pub. Resources Code, § 21080, subd. (b)(10)), but there is no exemption for

freight rail projects.

31

that it cannot be delegated to another body. (Planning & Conservation League v.

Department of Water Resources (2000) 83 Cal.App.4th 892, 907.)

CEQA provides for extensive review on the part of the lead public agency.

(Laurel Heights, supra, 47 Cal.3d at p. 390.) ―The EIR has been aptly described as the

‗heart of CEQA.‘ [Citations.] Its purpose is to inform the public and its responsible

officials of the environmental consequences of their decision before they are made.‖

(Citizens of Goleta Valley, supra, 52 Cal.3d at p. 564, fn. & italics omitted.)

Agencies are directed to mitigate or avoid significant environmental impacts in

projects they carry out (or approve) if it is feasible to do so (Pub. Resources Code,

§ 21002.1, subd. (c)), retaining discretion to carry out the project notwithstanding impacts

when mitigation is infeasible and certain findings have been made. (Id., §§ 21002.1,

subd. (c), 21081.) The EIR must set forth not only environmental impacts and mitigation

measures to be reviewed and considered by state and local agencies, but also project

alternatives (id., §§ 21001, subd. (g) [local lead agencies], 21002.1, subd. (a), 21100,

subd. (b)(4) [state lead agencies]; Citizens of Goleta Valley, supra, 52 Cal.3d at pp. 564-

565) — including a “no project” alternative. (Cal. Code Regs., tit. 14, § 15126.6.) As

we have said, ―the mitigation and alternatives discussion forms the core of the EIR.‖ (In

re Bay-Delta etc. (2008) 43 Cal.4th 1143, 1162.) When economic, legal, or other

considerations make mitigation or avoidance infeasible, the agency must make a finding

of overriding benefits that outweigh environmental effects. (Pub. Resources Code,

§ 21081, subds. (a)(3), (b).)

Typically CEQA requirements must be complied with as a condition of the

approval of projects or the undertaking of a project by the public agency itself. An

agency must not carry out a project when an EIR is certified identifying significant

environmental impacts, without first making specific findings regarding mitigation and

overriding benefits. (Pub. Resources Code, § 21081; City of Marina v. Board of Trustees

of California State University (2006) 39 Cal.4th 341, 350.)

32

CEQA is enforced with powerful remedies to ensure that the review process is

completed appropriately and the various findings are made before projects go forward.

Litigants, including members of the public, may apply to courts to order agencies to void,

either in whole or in part ―any determination, finding, or decision . . . made without

compliance‖ with CEQA. (Pub. Resources Code, § 21168.9, subd. (a); see also Code

Civ. Proc., § 1086 [standing for persons beneficially interested]; Save the Plastic Bag

Coalition v. City of Manhattan Beach (2011) 52 Cal.4th 155, 166, 170 [summarizing

principles of standing under CEQA].) CEQA affords enforcement mechanisms that may

have the effect of preventing or impeding progress on a public or private project pending

compliance with CEQA requirements. (Pub. Resources Code, § 21168.9, subd. (a)(2)

[mandate to public agency and real party in interest to suspend any or all specific project

activities until agency ―has taken any actions that may be necessary to bring the

determination, finding, or decision into compliance with [CEQA]‖].) But orders may be

limited and include ―only those mandates which are necessary to achieve compliance‖

and ―only those specific project activities in noncompliance‖ with CEQA. (Id.,

§ 21168.9, subd. (b) [severability findings].)

Using the mechanisms we have just described, plaintiffs challenged the

evidentiary basis of NCRA‘s findings and EIR certification, seeking an order that NCRA

set aside its findings, certification, and project approval pending CEQA compliance. In

addition, plaintiffs relied on CEQA to seek an injunctive remedy to halt the project as to

both NCRA and NWPCo pending NCRA‘s further reporting, mitigation measures, and

consideration of alternatives as provided by CEQA. In other words, plaintiffs sought to

require NCRA, as the lead agency, to comply more fully with CEQA. They would

impose state law requirements on that agency as a condition of its decision to proceed

with a project defined as the resumption of freight rail service along an existing line

(together with some limited track repairs).

33

2. CEQA would be preempted as applied to halting operations

by a private rail line

As the Court of Appeal recognized in its opinion in this case, there is little doubt

that application of CEQA to halt resumption of service by a private rail carrier pending

CEQA review by a state or local agency would have the effect of regulating rail

transportation and would be categorically preempted regulation.

As the Court of Appeal pointed out, regulation of the national system of railroads

is of peculiarly federal concern, rather than one involving historic state police powers.

(See Scheiding v. General Motors Corp. (2000) 22 Cal.4th 471, 481.) We have noted

that even when the early federal law governing railroads was adopted without an express

preemption clause, the high court concluded that the need for a unified federal system

meant that state remedies must be superseded. (See Texas & Pac., supra, 204 U.S. at pp.

440-441; see also Chicago & N. W., supra, 450 U.S. at p. 318.)

The ICCTA is unifying and deregulatory; it would undermine these values if states

could compel the railroad industry to halt service pending compliance with regulations

that conflict with federal law or invade the regulatory field of the STB. Requiring a

private rail carrier to undergo a state agency‘s CEQA review as a condition of operations

would impose an extensive state law regulatory burden on the rail carrier as a condition

of providing service. CEQA remedies could halt service on a line pending environmental

compliance even though the rail carriers were licensed by the STB to undertake

operations, and even though the STB may have determined that no environmental review

was required. Although CEQA does not on its face specifically regulate rail

transportation, its enforcement mechanisms requiring environmental compliance as a

condition of project approval involving a private rail carrier would have the effect of

regulating rail transportation, a result inconsistent with 49 U.S.C. section 10501.

Permitting a state to regulate private railroad operations even where STB

regulation is absent or has been satisfied is also inconsistent with the broad deregulatory

34

purpose of the ICCTA. State regulation would be in tension with the fact that the

ICCTA, like its predecessors, contemplates a national rail system operating with minimal

regulation, not an industry subject to a patchwork of state regulation. It would undermine

the purpose of the ICCTA if states could compel the rail industry to comply with

supplementary regulation on a state-by-state basis even when the STB has left a

regulatory hole, or, to put it more positively, a sphere of freedom of action for the owner.

As a number of courts have indicated, given the deregulatory purpose of the ICCTA,

what is deregulated under the ICCTA cannot be reregulated by the states. (See Fayus,

supra, 602 F.3d at p. 450 [the ICCTA contains no ―invitation to states to fill the

regulatory void created by federal deregulation‖]; Florida East Coast Ry. v. City of West

Palm Beach (11th Cir. 2001) 266 F.3d 1324, 1338 (Florida East Coast Ry.); Port City

Properties v. Union Pacific Ry. Co. (10th Cir. 2008) 518 F.3d 1186, 1188-1189 [the

ICCTA permits entities to construct certain tracks without STB approval, but this ―void‖

does not permit state regulation of such tracks]; CSX Transp., Inc. v. Georgia Public

Serv. Com‟n (N.D.Ga. 1996) 944 F.Supp. 1573, 1581 [rejecting claim that Georgia could

regulate the closure of ticketing agencies in the absence of federal regulation or remedies

on that subject]; Sen.Rep. No. 104-176, supra, p. 6 [nothing in the ICCTA ―should be

construed to authorize States to regulate railroads in areas where Federal regulation has

been repealed‖]; see also Boston & Maine Corp. and Town of Ayer, MA, Petition (STB,

Apr. 30, 2001, No. FD 33971) 2001 WL 458685, p. * 4 (Boston & Maine), affd. sub nom.

Boston & Maine Corp. v. Town of Ayer (D.Mass. 2002) 191 F.Supp.2d 257 [town‘s

preconstruction permit requirement preempted although STB approval not required];

Thomas Tubbs, Petition (STB, Oct. 29, 2014, No. FD 35792) 2014 WL 5508153, p. * 6;

Cities of Auburn & Kent, WA, Petition (STB, July 1, 1997, No. FD 33200) 1997 WL

362017, p. * 7 (Auburn & Kent), affd. sub nom. City of Auburn v. U.S. Government (9th

Cir. 1998) 154 F.3d 1025; North San Diego County Transit Development Board, Petition

(STB, Aug. 19, 2002, No. FD 34111) 2002 WL 1924265, p. * 5 (North San Diego).)

35

For the foregoing reasons, we acknowledge that state environmental permitting or

preclearance regulation that would have the effect of halting a private railroad project

pending environmental compliance would be categorically preempted. In the ordinary

regulatory setting in which a state seeks to govern private economic conduct, requiring

CEQA compliance as a condition of state permission to go forward with railroad

operations would be preempted.

Federal courts — even those that do not regard the ICCTA‘s preemption clause

as broad and sweeping — as well as the STB agree with the foregoing conclusion. Some

decisions refer to the preemption provision as ―sweeping,‖ ―pervasive‖ and

―comprehensive.‖ (Auburn, supra, 154 F.3d at p. 1029 (Auburn); see also Union Pacific

Ry. Co v. Chicago Transit Auth. (7th Cir. 2011) 647 F.3d 675, 678 (Union Pacific).)

Many federal decisions, on the other hand, characterize the preemption clause of the

ICCTA as relatively narrow. (Florida East Coast Ry., supra, 266 F.3d at p. 1331 [the

ICCTA preempts ― ‗regulation of rail transportation,‘ ‖ not all laws ― ‗with respect to rail

transportation‘ ‖]; see Franks Investment Co. LLC v. Union Pacific Ry. Co. (5th Cir.

2010) 593 F.3d 404, 410 (Franks); PCS Phosphate Co., Inc. v. Norfolk Southern Corp.

(4th Cir. 2009) 559 F.3d 212, 218 (PCS Phosphate); New York Susquehanna v. Jackson

(3d Cir. 2007) 500 F.3d 238, 252 (Susquehanna).)

But it is unnecessary to address disputes among federal courts concerning

whether to designate the preemption provision as broad or narrow, because in fact, even

those with a narrow view of preemption accept the same formulation concerning state

environmental laws. In this view, the ―preemption analysis distinguishes between two

types of preempted state actions or regulations. First, there are those state actions that are

‗categorically preempted‘ by the ICCTA because such actions ‗would directly conflict

with exclusive federal regulation of railroads.‘ [Citation.] Regulations falling within this

first category are ‗facially preempted‘ or ‗categorically preempted‘ and come in two

types: [¶] ‗The first is any form of state or local permitting or preclearance that, by its

36

nature, could be used to deny a railroad the ability to conduct some part of its operations

or to proceed with activities that the [STB] has authorized . . . . [¶] Second, there can be

no state or local regulation of matters directly regulated by the [STB] — such as the

construction, operation, and abandonment of rail lines [citation]; railroad mergers, line

acquisitions, and other forms of consolidation [citation]; and railroad rates and service

[citation].‘ [¶] [Citation.] State actions such as these constitute ‗per se unreasonable

interference with interstate commerce.‘ [Citation.] As such, the preemption analysis for

state regulations in this first category is addressed to ‗the act of regulation itself‘ and ‗not

to the reasonableness of the particular state or local action.‘ [Citation.] [¶] The second

category of preempted state actions and regulations are those that are preempted as

applied. Section 10501(b) [of 49 U.S.C.] may preempt state regulations, actions, or

remedies as applied, based on the degree of interference the particular state action has on

railroad operations. ‗For state or local actions that are not facially preempted, the section

10501(b) preemption analysis requires a factual assessment of whether that action would

have the effect of preventing or unreasonably interfering with railroad transportation.‘

[Citation.] . . . . [T]he STB stated that ‗it is well settled that states cannot take an action

that would have the effect of foreclosing or unduly restricting a railroad‘s ability to

conduct any part of its operations or otherwise unreasonably burdening interstate

commerce.‘ ‖ (New Orleans & Gulf Coast Ry. Co. v. Barrois (5th Cir. 2008) 533 F.3d

321, 332, italics added & omitted (New Orleans & Gulf Coast); see also Union Pacific,

supra, 647 F.3d at p. 679; Franks, supra, 593 F.3d at pp. 410, 413; Adrian & Blissfield

Ry. Co. v. Village of Blissfield (6th Cir. 2008) 550 F.3d 533, 539-540 (Adrian &

Blissfield); Emerson v. Kansas Southern Ry. Co. (10th Cir. 2007) 503 F.3d 1126, 1130,

1132-1133 (Emerson); see also People v. Burlington Northern Santa Fe Railroad (2012)

209 Cal.App.4th 1513, 1528 (Burlington).)

More specifically, the rule seems well accepted in federal courts that the ICCTA

preempts state and local environmental regulation requiring private railroad companies to

37

acquire permits or preclearance as a condition to operating the railroad, as well as

remedies that would prohibit the conduct of railroad business pending compliance with

state or local environmental requirements.

For example, in Auburn, supra, 154 F.3d 1025, a private rail carrier was before

the STB seeking approval to reacquire a portion of a rail line through the Stampede Pass

in Washington State, and to reopen service on the route. The rail carrier‘s plans included

repairs and improvements on the line. STB environmental staff, following environmental

assessments under the federal environmental law, concluded the project would not have a

significant environmental effect if certain mitigation efforts were undertaken. The STB

approved the project, but the City of Auburn challenged the agency‘s decision, arguing

that the agency erroneously had found state and local environmental review of the project

and the related permitting process to be preempted by the ICCTA. The city sought to

compel the private rail carrier‘s compliance with state and local environmental rules as a

precondition to rail operations, but the court determined that such application of state and

local law was preempted.

The City of Auburn argued, as do plaintiffs and amici curiae supporting them in

the present case, that the ICCTA preempts solely economic regulation of railroads, but

not a state‘s exercise of traditional police power to protect the environment. The Ninth

Circuit responded that, on the contrary, rail regulation has long been viewed as a subject

of federal concern from which states are excluded, and that prior law, as continued in

effect by the ICCTA, was ―recognized as ‗among the most pervasive and comprehensive

of federal regulatory schemes.‘ ‖ (Auburn, supra, 154 F.3d at p. 1029.) The court

referred to both 49 U.S.C. section 10501(b)‘s statement of exclusive jurisdiction and its

explicit preemption clause displacing state remedies ― ‗with respect to regulation of rail

transportation‘ ‖ (154 F.3d at p. 1030), as well as other language, commented on the

absence of language in the act expressly sparing state environmental regulation from

preemption (Auburn, supra, p. 1031 [―there is no evidence that Congress intended any

38

such state role under the ICCTA to regulate the railroads‖]), and drew parallels with the

preemptive scope of assertedly similar federal laws. (Ibid.)

In conclusion, the Auburn court observed, ―the distinction between ‗economic‘

and ‗environmental‘ regulation begins to blur. For if local authorities have the ability to

impose ‗environmental‘ permitting regulations on the railroad, such power will in fact

amount to ‗economic regulation‘ if the carrier is prevented from constructing, acquiring,

operating, abandoning, or discontinuing a line. [¶] We believe the congressional intent

to preempt this kind of state and local regulation of rail lines is explicit in the plain

language of the ICCTA and the statutory framework surrounding it. [Citation.] Because

congressional intent is clear, and the preemption of rail activity is a valid exercise of

congressional power under the Commerce Clause, we affirm the STB‘s finding of federal

preemption.‖ (Auburn, supra, 154 F.3d at p. 1031, fn. omitted; see also Susquehanna,

supra, 500 F.3d at p. 252 [rejecting the view that the ICCTA preempts solely economic

regulation]; Florida East Coast Ry., supra, 266 F.3d at p. 1331 [same].)

In another decision — also involving state attempts to exert control over a

private rail carrier — the court in Green Mountain Railroad Corp. v. Vermont (2d Cir.

2005) 404 F.3d 638 (Green Mountain) held that the ICCTA preempted Vermont‘s efforts

to obtain a declaratory judgment requiring the railroad carrier to go through a state

environmental law process imposing mitigation conditions before the carrier could obtain

a permit to construct a transloading facility on its land. The Second Circuit relied on the

ICCTA‘s language expressly preempting ―remedies . . . with respect to regulation of rail

transportation‖ (49 U.S.C. § 10501(b)), vesting in the STB exclusive jurisdiction over

transportation by rail carriers (ibid.), and defining the term ―transportation‖ broadly to

include facilities related to movement of passengers or freight under section 10102(9).

(Green Mountain, at p. 642.) The state preconstruction permit requirement in that case

was preempted because it ― ‗unduly interfere[s] with interstate commerce by giving the

local body the ability to deny the carrier the right to construct facilities or conduct

39

operations,‘ [citation]; and . . . it can be time-consuming, allowing a local body to delay

construction of railroad facilities almost indefinitely.‖ (Id. at p. 643.) The court also

relied on Auburn, federal district court opinions, and STB decisions for the proposition

that ― ‗state and local permitting or preclearance requirements (including environmental

requirements) are preempted because by their nature they unduly interfere with interstate

commerce.‘ ‖ (Ibid.)

The Green Mountain court acknowledged, as numerous other cases have, that

state and local governments retain some ―traditional police powers over the development

of railroad property,‖ suggesting that such police powers should be recognized solely ―to

the extent that the regulations protect public health and safety‖ and are defined, settled,

and can be obeyed with certainty and without delay or exercise of discretion. (Green

Mountain, supra, 404 F.3d at p. 643.) ―Electrical, plumbing and fire codes, direct

environmental regulations enacted for the protection of the public health and safety, and

other generally applicable, non-discriminatory regulations and permit requirements

would seem to withstand preemption.‖ (Ibid.; see also Susquehanna, supra, 500 F.3d at

pp. 253-254; see generally cases discussed post, pt. II.E.1.) But the Green Mountain

court found no need to identify the dividing line between permissible and impermissible

state or local regulation, on the ground that preemption was clearly called for in the case

before it. The environmental permitting law gave the local agency the ability to

inordinately delay or deny the rail carrier the right to build. Preemption was required

because ―the railroad is restrained from development until a permit is issued‖ and

issuance of the permit depends on an exercise of state or local agency discretion. (Green

Mountain, supra, 404 F.3d at p. 643.)

STB decisions are to the same effect, including decisions involving CEQA. In one

case, for example, the STB entered a declaratory order finding that a private rail carrier‘s

proposed construction of a high-speed rail line between California and Nevada would

come within federal environmental provisions, but that ―state permitting and land use

40

requirements that would apply to non-rail projects, such as the California Environmental

Quality Act, will be preempted. [Citation.] But state and local agencies and concerned

citizens will have ample opportunity to participate in the ongoing [environmental impact

statement] process under [federal environmental] and related laws.‖ (DesertXpress

Enterprises, LLC, Petition (STB, June 25, 2007, No. FD 34914) 2007 WL 1833521,

p. * 3.) And the STB has reached similar decisions with respect to the laws of other

states. (See CSX Transportation, Inc., Petition (STB, May 3, 2005, No. FD 34662) 2005

WL 1024490, pp. * 3, * 4 [D.C. law governing transportation of hazardous materials near

the United States Capitol Building was preempted; it would require railroads to obtain a

permit to move rail traffic and would be ―directly covered by the categorical preemption

against state and local permitting processes‖ and any ban on certain cargo ―would

directly conflict with the [STB‘s] regulatory authority over rail operations‖]; Boston &

Maine, supra, 2001 WL 458685, p. * 5 [town‘s preconstruction permit requirement

preempted].)

In conclusion, there seems little doubt that, in the ordinary regulatory setting in

which a state seeks to regulate a private rail carrier, applying CEQA to condition

permission for that carrier to go forward with railroad operations would be preempted by

the ICCTA.

E. The Court of Appeal’s conclusion nonetheless is overbroad and incorrect

The Court of Appeal declined to invoke any presumptions concerning the scope of

ICCTA preemption, and, as noted, declared that ―CEQA is preempted by federal law

when the project to be approved involves railroad operations.‖ The court‘s conclusion

exceeds the proper scope of the ICCTA and violates the preemption principles we have

discussed.

1. Police powers

Preliminarily, we note that the quoted language is too broad in that the federal

interest in rail transportation does not entirely sweep away the exercise of the state‘s

41

regulatory police powers when such regulation merely implicates rail transportation.

Even as to powers that are exclusively federal, ―it does not follow that any and all state

regulations touching on [that power] are preempted.‖ (In re Jose C. (2009) 45 Cal.4th

534, 550, italics added [upholding state law connected to immigration matters].) The

federal decisions we have discussed differentiate state laws that are categorically

preempted by the ICCTA, such as environmental preclearance requirements for railroad

operations, from those that merely burden rail transportation and may be preempted as

applied if, under the particular facts, they would interfere unduly with railroad operations

or unreasonably burden interstate commerce. (New Orleans & Gulf Coast, supra, 533

F.3d at p. 332; see also Franks, supra, 593 F.3d at pp. 410, 413; Adrian & Blissfield,

supra, 550 F.3d at pp. 539-540; Emerson, supra, 503 F.3d at pp. 1130, 1132-1133;

Burlington, supra, 209 Cal.App.4th at p. 1528.) The case law supports the conclusion

that the ICCTA does not broadly preempt all historic state police powers over health and

safety or land use matters, to the extent state and local regulation and remedies with

respect to these issues do not discriminate against rail transportation, do not purport to

govern rail transportation directly, and do not prove unreasonably burdensome to rail

transportation. (Emerson, supra, 503 F.3d at pp. 1130, 1132-1133 [state tort claims for

improper disposal of railroad ties not preempted]; see also Franks, supra, 593 F.3d at

p. 410 [the ICCTA does not preempt state law with a remote or incidental effect on rail

transportation; state action enjoining railroad from removing privately owned railroad

crossings not preempted]; PCS Phosphate, supra, 559 F.3d at pp. 218-220 [ICCTA

preemption does not displace ordinary voluntary agreements between private parties];

Adrian & Blissfield, supra, 550 F.3d at pp. 540-541 [state track maintenance statute that

would require the railroad to pay for pedestrian crossings across its tracks was not

preempted; imposing increased costs on railroad is not by itself enough to establish

unreasonable interference]; Susquehanna, supra, 500 F.3d at pp. 252-255 [fines may be

imposed under state law on railroad for environmental hazards at transloading facility;

42

the ICCTA would not preempt, for example, rules fining the railroad for dumping debris

or harmful substances]; Green Mountain, supra, 404 F.3d at p. 643; Florida East Coast

Ry., supra, 266 F.3d at pp. 1328, 1331 [ICCTA preemption does not extend to traditional

police power of zoning and health and safety regulation]; Jones v. Union Pacific Railroad

Co. (2000) 79 Cal.App.4th 1053, 1060 [state nuisance action based on train noise and

fumes not necessarily preempted if the plaintiffs can demonstrate the challenged nuisance

did not further the railroad‘s operations]; In re Vermont Ry. (Vt. 2000) 769 A.2d 648, 655

[zoning conditions imposed not on rail line but on truck traffic and environmental

conditions at railroad‘s salt shed not preempted]; City of Girard v. Youngstown Belt Ry.

Co. (Ohio 2012) 979 N.E.2d 1273, 1283 [eminent domain action not categorically

preempted]; Home of Economy v. Burlington Northern Santa Fe Ry. (N.D. 2005) 694

N.W.2d 840, 845-846 [state injunctive relief requiring reopening of grade crossing not

preempted].) This conclusion is confirmed in the legislative history. (See H.R.Rep. No

104-311, supra, p. 96 [while the ICCTA is intended to preempt state economic

regulation, in other respects ―States retain the police powers reserved by the

Constitution‖].)

The STB itself has confirmed that the exercise of historic state police powers

concerning environmental matters is not necessarily preempted by the ICCTA. (Auburn

& Kent, supra, 1997 WL 362017, p. * 6] [―even in cases where we approve a

construction or abandonment project, a local law prohibiting the railroad from dumping

excavated earth into local waterways would appear to be a reasonable exercise of local

police power. Similarly . . . a state or local government could issue citations or seek

damages if harmful substances were discharged during a railroad construction or

upgrading project. A railroad that violated a local ordinance involving the dumping of

waste could be fined or penalized for dumping by the state or local entity. The railroad

also could be required to bear the cost of disposing of the waste from the construction in

a way that did not harm the health or well being of the local community‖].)

43

The STB has recognized, too, that a state law simply requiring, for example, the

development of information concerning a railroad project would not necessarily be

preempted. In Boston & Maine, for example, the STB stated, ―While a locality cannot

require permits prior to construction, . . . a railroad can be required to notify the local

government ‗when it is undertaking an activity for which another entity would require a

permit‘ and to furnish its site plan to the local government‖ (Boston & Maine, supra,

2001 WL 458685, p. * 5), adding that ―[l]ike any citizen or business, railroads have some

responsibility to work with communities to seek ways to address local concerns in a way

that makes sense and protects the public health and safety‖ with pragmatic solutions.

(Id., p. * 7.) ―Examples of solutions that appear . . . reasonable include conditions

requiring railroads to (1) share their plans with the community, when they are

undertaking an activity for which another entity would require a permit, (2) use state or

local best management practices when they construct railroad facilities; (3) implement

appropriate precautionary measures . . . ; (4) provide representatives to meet periodically

with citizen groups or local government entities to seek mutually acceptable ways to

address local concerns; and (5) submit environmental monitoring or testing information

to local government entities for an appropriate period of time after operations begin.‖

(Ibid., fns. omitted.)

Moreover, there are various instances in which rail operations may also be subject

to regulation under other federal laws that preserve state power to a defined degree.

(See Burlington, supra, 209 Cal.App.4th at pp. 1523-1524, and cases cited [discussing

the extent to which the federal rail safety law may preserve state rail safety provisions

notwithstanding the ICCTA].) In their amici curiae brief, the California Environmental

Protection Agency and the California Natural Resources Agency appropriately counsel

caution and would avoid the Court of Appeal‘s broad formulation quoted above. In their

view, such a statement of the law could undermine viable state environmental

regulations, including those that implement those federal laws that must be harmonized

44

with the ICCTA. They cite authority declaring that ― ‗nothing in [49 U.S.C.] section

10501(b) is intended to interfere with the role of state and local agencies in implementing

Federal environmental statutes,‘ ‖ including the Clean Air Act (42 U.S.C. § 7401 et seq.;

see especially § 7401(a)(3)); the Clean Water Act (33 U.S.C. § 1251 et seq.; see

especially §§ 1370, 2718); and the Safe Drinking Water Act (42 U.S.C. § 300f et seq.).

(See Ass‟n of American Railroads v. South Coast Air Quality Management Dist. (9th Cir.

2010) 622 F.3d 1094, 1097-1098 [harmonizing the ICCTA with other federal statutes and

those state laws that are preserved thereunder]; see also U.S. v. St. Mary‟s Ry. West, LLC

(S.D.Ga. 2013) 989 F.Supp.2d 1357, 1360-1363; Boston & Maine, supra, 2001 WL

458685, p. * 5.) We do not, however, employ or endorse the Court of Appeal‘s unduly

broad formulation, and our opinion should not be read to suggest that the ICCTA

preemption clause is so sweeping as to displace state powers preserved under other

federal provisions.

2. Self-government

But what is far more significant to the present case, we recall that the ICCTA

preempts solely ―regulation‖ of rail transportation. (49 U.S.C. § 10501(b).) We now

consider whether a state engages in regulation within the meaning of the ICCTA‘s

preemption language as applied to state law directing a subdivision of the state to develop

the state‘s own freight rail transportation project according to certain environmental

guidelines.

CEQA embodies a state policy adopted by the Legislature to govern how the state

itself and the state‘s own subdivisions will exercise their responsibilities. (See ante,

pt. II.D.1) When CEQA conditions the issuance of a permit for private development on

CEQA compliance, and thereby restricts the ability of private citizens and companies to

develop their property, this seems plainly regulatory. But CEQA also operates as a form

of self-government when the state or a subdivision of the state is itself the owner of the

property and proposes to develop it. Application of CEQA to the public entity charged

45

with developing state property is not classic regulatory behavior, especially when there is

no encroachment on the regulatory domain of the STB or inconsistency with the ICCTA,

as explained in the next section. Rather, application of CEQA in this context constitutes

self-governance on the part of a sovereign state and at the same time on the part of an

owner. It appears to us extremely unlikely that Congress, in enacting the ICCTA,

intended to preempt a state‘s adoption and use of the tools of self-governance in this

situation, or to leave the state, as owner, without any means of establishing the basic

principles under which it will undertake significant capital expenditures.

a. Principles derived from deregulation

We have seen from the summary of the ICCTA (see ante, pt. II.C), that the law

provides for limited federal regulation in defined spheres. We have also seen that the

ICCTA was intended to complete a deregulatory trend. Statutorily defined policy

minimizes regulatory control and barriers (49 U.S.C. § 10101(2), (7)), and imposes a duty

on the STB to afford regulatory exemptions ―to the maximum extent consistent with [the

ICCTA].‖ (Id., § 10502(a); see also 49 C.F.R. § 1150.31.)

Deregulation means that once general ICCTA compliance obligations are met, the

railroad owner has a protected domain that is subject neither to federal nor to state

regulation, a freedom to plan, develop, and restore rail service on market principles but

within the framework of modest federal regulation. The text and history of the enactment

indicate that, in the domain that has been deregulated, the owner may carry out its

activities according to its own corporate goals and in response to market forces. This

freedom, of course, is subject to the proviso that the owner‘s actions cannot conflict with

federal regulations. But within the zone of the owner‘s control, the owner has

considerable freedom. Freedom does not imply anarchy — the private owner ordinarily

will have internal corporate rules, policies and bylaws to guide its market-based

decisions. In other words, we may presume that a private conglomerate that owns a

subsidiary that is a railroad company is not required to decide when it is prudent to go

46

forward with the development of a railroad project by, for example, tossing a coin.

Rather, it can make its decisions based on its own internal guidelines, so long as there is

no conflict with federal law.

But how is the freedom accorded to the private owner by the ICCTA to be given

effect when the state is the owner of a rail line? The ICCTA‘s deregulatory sweep must

protect the zone of autonomy belonging to the state when it is the owner, such that within

the deregulated zone, the state as owner may make its decisions based on its own

guidelines rather than some anarchic absence of rules of decision. And we have already

established that CEQA is an internal guideline governing the processes by which state

agencies may develop or approve projects that may affect the environment. (See ante,

pt. II.D.1.)

If a private owner has the freedom to adopt guidelines to make decisions in a

deregulated field, we see no indication the ICCTA preemption clause was intended to

deny the same freedom to the state as owner. The ICCTA does not appear to us to be

intended to effect a blanket preemption of state law governing how a state‘s own

subdivision — its subsidiary — will enter and engage in the railroad business, so long as

there is no inconsistency with regulation provided for by the ICCTA.

In fact, even putting aside broader owner decisions concerning entry into a

railroad market, it appears that the specific project under consideration in the present case

was within an owner‘s sphere of control. We can discern that the track repair element of

the project in the present case was within the owner‘s sphere under the ICCTA because

the STB has chosen not to regulate track repair and renovation on existing lines. (See

Lee‟s Summit, MO v. Surface Transp. Bd. (D.C. Cir. 2000) 231 F.3d 39, 42-43, fn. 3

(Lee‟s Summit); Detroit/Wayne County Port Authority v. I.C.C. (D.C. Cir. 1995) 59 F.3d

1314, 1317 [same, under ICC]; Flynn v. Burlington Northern Santa Fe Corp. (E.D.Wn.

2000) 98 F.Supp.2d 1186, 1190 [although the STB has jurisdiction over rail construction,

it appears it does not in fact regulate refurbishing of existing lines].) And we can discern

47

that decisions about resuming a certain level of service, and particularly about

undertaking environmental review of the impact of resumption of freight service along

the line are within the owner‘s sphere of independent action, because the STB determined

that the level of service along the line in the present case did not cross a threshold that

would require federal environmental review. (See ante, at pp. 9-10; see also Lee‟s

Summit, supra, 231 F.3d 39 [approving STB determination that no environmental

assessment is required under the ICCTA for restored level of service, under a certain

threshold, over existing but unused railroad]; Boston & Maine, supra, 2001 WL 458685,

p. * 4 [railroads do not need STB approval to upgrade or increase traffic on an existing

line]; see also 3 West‘s Fed. Administrative Prac., supra, § 5390, fns. 1 & 13.)

In the present case, the STB accepted NCRA‘s and NWPCo‘s petitions for

exemption from STB certification requirements, but the STB‘s recognition of each

entity‘s status as a rail carrier did not instruct them how soon they had to complete track

repairs on the shuttered line, what the best method of repair might be, or when,

specifically, they must resume service. Nothing in the exemptions tells NCRA or

NWPCo how to evaluate choices about services or how to decide what methods to

employ for track rehabilitation. These were owner decisions in a deregulated sphere.

b. The Gregory-Nixon rule

We are all the more confident of our interpretation of the ICCTA preemption

provision when we return to the presumptions we discussed earlier in introducing

preemption principles. (See ante, pt. II.B.2.) We presume that Congress, in adopting a

preemption provision, does not intend to deprive a state of its sovereign authority over its

internal governance — at least not without a particularly clear statement of intent.

(Raygor v. Regents of Univ. of Minn. (2002) 534 U.S. 533, 543 [―When ‗Congress

intends to alter the ―usual constitutional balance between the States and the Federal

Government,‖ it must make its intention to do so ―unmistakably clear in the language of

the statute‖ ‘ ‖].) This principle cautions against an interpretation of a preemption clause

48

that encroaches on states‘ internal authority over the structure of their governments. (See

Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 388; see also

Printz v. United States (1997) 521 U.S. 898, 928 [―It is an essential attribute of the States‘

retained sovereignty that they remain independent and autonomous within their proper

sphere of authority‖].)

We agree with plaintiffs that application of CEQA to NCRA‘s decisions in the

deregulated sphere in this case simply constitutes the state‘s governance of its own

subdivision, a matter of self-management that the ICCTA presumptively was not

intended to entirely preempt. We rely on the high court‘s decisions in Gregory, supra,

501 U.S. 452, and Nixon, supra, 541 U.S. 125, in support. Those decisions hold that an

interpretation of a federal statute that would infringe on state sovereignty should not be

adopted absent unmistakably clear language of intent to achieve that result — language

we believe is missing from the ICCTA‘s preemption clause.

In Gregory, supra, 501 U.S. 452, state judges challenged a state constitutional

provision prescribing a mandatory retirement age, claiming that application of the

provision to them would violate a federal statute barring age discrimination in

employment. The high court disagreed, relying upon certain exclusionary language in the

federal enactment to avoid a conclusion that would constitute an undue incursion on ―the

usual constitutional balance of federal and state powers.‖ (Id. at p. 460.)

The Supreme Court acknowledged that in the balance between state and federal

sovereign powers, the supremacy clause leaves the federal government with a ―decided

advantage.‖ (Gregory, supra, 501 U.S. at p. 460.) ―As long as it is acting within the

powers granted it under the Constitution, Congress may impose its will on the States.

Congress may legislate in areas traditionally regulated by the States. This is an

extraordinary power in a federalist system. It is a power that we must assume Congress

does not exercise lightly.‖ (Ibid., italics added.)

49

In the Gregory situation, the high court said, the state constitutional provision

setting qualifications for judges was more than simply a matter traditionally regulated by

states. Rather, it was ―a decision of the most fundamental sort for a sovereign entity.‖

(Gregory, supra, 501 U.S. at p. 460.) ―Through the structure of its government, and the

character of those who exercise government authority, a State defines itself as a

sovereign.‖ (Ibid.) Congressional interference in this sphere ―would upset the usual

constitutional balance of federal and state powers. For this reason, ‗it is incumbent upon

the federal courts to be certain of Congress‘ intent before finding that federal law

overrides‘ this balance. [Citation.] We explained recently: ‗[I]f Congress intends to

alter the ―usual constitutional balance between the States and the Federal Government,‖ it

must make its intention to do so ―unmistakably clear in the language of the statute.‖

[Citations.]‘ ‖ (Id. at pp. 460-461, italics added.)

In Gregory, the high court explained that the requirement that courts avoid an

interpretation of federal statute that would encroach on state sovereign powers was not a

retreat from the rationale of Garcia v. San Antonio Metro. Transit Auth. (1985) 469 U.S.

528 (Garcia), a decision that relied primarily on the political process to protect state

sovereignty from congressional commerce clause power in the context of the 10th

Amendment. (Gregory, supra, 501 U.S. at p. 464.) Instead, the Gregory opinion said,

the rule of interpretation the court was adopting — the ―unmistakably clear‖ requirement

— actually was consistent with Garcia. ―Indeed, inasmuch as this Court in Garcia has

left primarily to the political process the protection of the States against intrusive

exercises of Congress‘ Commerce Clause powers, we must be absolutely certain that

Congress intended such an exercise. ‗[T]o give the state-displacing weight of federal law

to mere ambiguity would evade the very procedure for lawmaking on which Garcia

relied to protect states‘ interests.‘ [Citation.]‖ (Ibid.)

In the second leading case on this point, Nixon, supra, 541 U.S. 125, the high

court applied Gregory and concluded that a federal telecommunications enactment did

50

not preempt a state law that barred municipalities from entry into the telecommunications

business. The federal act provided that ―[n]o State or local statute or regulation . . . may

prohibit or have the effect of prohibiting the ability of any entity to provide any interstate

or intrastate telecommunications service.‖ (47 U.S.C. § 253(a), italics added.) Certain

municipalities claimed they fell within the designation ―any entity‖ and that the federal

law preempted the state law barring municipalities from entering the telecommunications

business. The United States Supreme Court found the federal statute‘s reference to ―any

entity‖ ambiguous, however, and certainly not ―unmistakably clear‖ enough to

encompass public entities. To better understand congressional intent, the court

considered how the statute would work in practice if applied to prevent the state from

barring municipalities from entering the telecommunications market. ―We think that the

strange and indeterminate results of using federal preemption to free public entities from

state or local limitations is the key to understanding that Congress used ‗any entity‘ with

a limited reference to any private entity when it cast the preemption net.‖ (Nixon, supra,

541 U.S. at p. 133.)

The Supreme Court explained that regulatory preemption usually works by

―preempting state regulation in some precinct of economic conduct carried on by a

private person or corporation,‖ thereby ―simply leav[ing] the private party free to do

anything it chooses consistent with the prevailing federal law. . . . On the subject

covered, state law just drops out.‖ (Nixon, supra, 541 U.S. at p. 133.) Under normal

preemption of state regulation of economic activity, to give an example, if state

regulation of cigarette advertising is preempted ―a cigarette seller is left free from

advertising restrictions imposed by a State, which is left without the power to control on

that matter.‖ (Ibid.)

According to the high court, preemption of a state law banning municipalities

from entering the telecommunications business would yield no such simple result. The

municipalities had argued in favor of preempting the state‘s ban on their entry into the

51

market, but even if the ban were preempted, the Supreme Court said, the local entities

would still need a state law authorizing them to enter the market in the first place.

(Nixon, supra, 541 U.S. at pp. 134-135.) And preemption would still leave the local

entities at the mercy of the state over the crucial matter of funding. (Id. at pp. 134, 136.)

Unlike with economic regulation of private actors, governmental self-regulation is an

expression of governmental authority and operates so differently that the high court

thought it unlikely Congress intended preemption to reach so far. (Id. at p. 134.)

The Supreme Court gave several examples of the unfortunate results of the

municipalities‘ position — unlikely to have been intended by Congress — including the

memorable ―one-way ratchet.‖ In the hypothetical, a state has at one time authorized

municipalities to provide water, electricity and telecommunications services. Later the

state statute is amended so that only water services are authorized. If the law removing

authority to provide telecommunications services were preempted, ―[t]he result . . . would

be the federal creation of a one-way ratchet. A State or municipality could give the

power, but it could not take it away later. Private counterparts could come and go from

the market at will . . . ; [but] governmental providers could never leave . . . , for the law

expressing the government‘s decision to get out would be preempted.‖ (Nixon, supra,

541 U.S. at p. 137.)

Thus, according to the Supreme Court, the federal provision ―would not work like

a normal preemptive statute if it applied to a governmental unit. It would often

accomplish nothing, it would treat States differently depending on the formal structures

of their laws authorizing municipalities to function, and it would hold out no promise of a

national consistency. We think it farfetched that Congress meant [the provision] to start

down such a road in the absence of any clearer signal . . . .‖ (Nixon, supra, 541 U.S. at

p. 138.)

The presumption described in Nixon and Gregory supports the view that CEQA is

not preempted in this case. In fact, the Nixon decision is peculiarly apt here. The court

52

concluded that preemption, if recognized in such a situation, would work ―by interposing

federal authority between a State and its municipal subdivisions, which our precedents

teach, ‗are created as convenient agencies for exercising such of the governmental

powers of the State as may be entrusted to them in its absolute discretion.‘ [Citations.]

Hence the need to invoke our working assumption that federal legislation threatening to

trench on the States‟ arrangements for conducting their own governments should be

treated with great skepticism, and read in a way that preserves a State‟s chosen

disposition of its own power, in the absence of the plain statement Gregory requires.‖

(Nixon, supra, 541 U.S. at p. 140, italics added; see also Gillie, supra, ___ U.S. ___, ___

[136 S.Ct. at p. 1602] [warning against ―constru[ing] federal law in a manner that

interferes with ‗States‘ arrangements for conducting their own governments‘ ‖].)

We may presume that the term ―regulation of rail transportation‖ found in the

ICCTA preemption provision was not intended to entirely sweep away a state‘s ability to

engage in self-government over its own subsidiaries — specifically, subsidiary entities

that are charged by the state with developing or reestablishing a rail line. Just as in

Nixon, the preemption claimed by NCRA here would not work like normal preemption of

a state‘s economic regulation in the private marketplace, but rather would intrude on state

sovereignty. Preempting regulation of economic activity by a private person would, as

the Nixon court said, ―simply leave[] the private party free to do anything it chooses

consistent with the prevailing federal law.‖ (Nixon, supra, 541 U.S. at p. 133.) In other

words, the private party could freely engage in self-governance as long as there was no

violation of federal law. But the impact of preemption on the state as owner of a rail line

would be quite different — it would leave the state without the ability to achieve self-

governance through the medium normally and constitutionally available to states — the

adoption of state law of general application. Without plainer language to that effect, we

do not believe Congress intended to displace the exercise of a state‘s ordinary power of

53

self-governance when the state does not propose to act in contravention of the dictates of

the ICCTA.

Crucially, what is at stake here is the state trying to govern itself — to engage in

―decision[s] of the most fundamental sort for a sovereign entity.‖ (Gregory, supra, 501

U.S. at p. 460.) Unlike with economic regulation of private actors, ―when a government

regulates itself (or the subdivision through which it acts) there is no clear distinction

between the regulator and the entity regulated. Legal limits on what may be done by the

government itself (including its subdivisions) will often be indistinguishable from choices

that express what the government wishes to do with the authority and resources it can

command. That is why preempting state or local governmental self-regulation (or

regulation of political inferiors) would work so differently from preempting regulation of

private players that we think it highly unlikely that Congress intended to set off on such

uncertain adventures.‖ (Nixon, supra, 541 U.S. at p. 134, italics added.)

As in Nixon, preempting the state‘s ability to dictate how its own subdivisions will

handle environmental concerns caused by the state‘s own railroad business would operate

so entirely differently from the usual regulatory scenario involving the private

marketplace that we do not believe this was what Congress intended. Preempting the

state‘s ability, through its laws, to adopt general precepts governing its own development

schemes in the sphere in which private owners would have freedom of action would leave

the state, as owner, without the tools necessary to govern its own subdivision. Such

preemption could deprive the state of the ability to make decisions that would carry out

the goals the state embraced concerning development projects, including undertaking

environmental mitigation or deciding not to undertake a project at all because of its

environmental hazards. State law, specifically CEQA, would not be regulating as applied

to NCRA in any commonly understood interpretation of the term, but rather would be an

expression of state governmental decisions about the disposition of state authority and

resources. (See Nixon, supra, 541 U.S. at p. 134.) We see no unmistakably clear

54

indication in the language of 49 U.S.C. section 10501(b) that would direct us to the

surprising conclusion that a state must operate without its usual tools and guidelines

when it becomes an owner-participant in the railroad industry.

Preemption of CEQA as applied to NCRA also would mean that the state can start

a railroad and fund it, but cannot control how the work is done on the line even as to

matters a private owner could control. Indeed, if state law of general application does not

apply to NCRA‘s decisions concerning the state‘s railroad project it is difficult to know

under what rules NCRA should make its decisions. NCRA is not an independent

corporation or a private company, but an arm of the state, created and funded by the state

to carry out goals established by the Legislature. What rule of decision — with respect to

matters not directly regulated by the STB — other than whim would guide NCRA‘s

decisions, if not state law? The state would be committed to some version of the one-

way ratchet — able to enter the rail business, but unable to require anything of the

subordinate agency it set up to carry out the state‘s rail initiative. We presume Congress

did not intend such an absurd result or one so intrusive on state powers of self-

governance in its own forays into the market in the absence of unmistakably clear

language.

The availability of citizen enforcement mechanisms does not change our view that

CEQA operates as a system of self-governance as applied to NCRA in this case. What is

at stake here is whether the application of state law is regulatory within the meaning of 49

U.S.C. section 10501(b). CEQA actions in this case do not become regulatory simply

because they are brought by citizens.

When it created NCRA, the Legislature did not afford it a CEQA exemption,

thereby committing NCRA to follow CEQA. CEQA‘s substantive provisions and

citizen-suit provisions are intertwined. CEQA requires government entities to gather the

information the entities need to make decisions about pursuing their own development

projects; CEQA requires that entities engaged in considering a project with

55

environmental impacts make findings that are supported by substantial evidence; and

CEQA requires that entities avoid abuses of discretion when weighing mitigation,

considering project alternatives and feasibility, and in approving projects. The state, with

these rules about the process of decisionmaking for its subdivisions, engages in self-

government. And the Legislature has seen fit to permit these rules of self-governance to

be enforced by citizen suits. Thus citizen actions are a method of enforcement chosen by

the state itself, again as a matter of self-governance.

It seems evident that the state‘s interest in self-governance extends to designing a

system of enforcement. It is not unusual for the state to authorize citizen enforcement of

state-adopted rules governing how the state and its subdivisions will conduct the public‘s

business. Indeed, citizen actions may be authorized precisely because there may be

particular procedures with which a subordinate public agency is reluctant to comply.

(See Gov. Code, § 11130 [action to enforce state-entity open meeting law]; id., § 54960,

subd. (a) [action to enforce local-entity open meeting law]; see also Code Civ. Proc.,

§ 1094.5 [administrative mandamus].)

We acknowledge that CEQA actions might cross the line into preempted

regulation if the review process imposes unreasonable burdens outside the particular

market in which the state is the owner and developer of a railroad enterprise. But in the

context of addressing the competing federal and state interests in governing state-owned

rail lines that are before us in this case, such a line is not crossed by recognizing CEQA

causes of action brought against NCRA to enforce environmental rules of decision that

the state has imposed on itself for its own development projects.

We by no means posit that the ICCTA does not govern state-owned rail lines. It

appears undisputed that state-owned rail lines, like private ones, must comply with the

ICCTA‘s provisions and with STB regulation and that state regulation of rail carriers is

56

preempted even when the state owns the line.7 But it does not appear unmistakably clear

that in adopting the preemption provision of the ICCTA, Congress intended that state

7 A ruling that the ICCTA is inapplicable to state-owned railroads would be

inconsistent with the plain purpose of the ICCTA and its predecessors to ensure a

uniform national system of rail service subject to national — but limited — federal

regulation. We have seen that the ICCTA goes beyond its predecessor in this respect,

even preempting former limited state regulation of purely intrastate lines. Indeed it

would be impossible to have a unified national rail system if a state could march to a

different drummer when it owned the railroad. In view of the national system

contemplated by the ICCTA, it would be absurd to suppose that a state could require a

state-owned rail line that connects with interstate tracks to, for example, abandon

essential connecting lines without respect to STB requirements, shrug off its common

carrier obligations without STB approval, charge discriminatory rates notwithstanding

ICCTA rate restrictions, or engage in a sale that would be disapproved by the STB.

There is authority demonstrating as much. State-owned rail lines and entities have

been held subject to the common carrier obligations of the predecessor statute, the

Interstate Commerce Act. (City of New Orleans v. Texas & Pac. Ry. Co. (5th Cir. 1952)

195 F.2d 887, 889 [―So long as it engages in interstate and foreign commerce [the

publicly owned line] is subject to the federal law and the Interstate Commerce

Commission, like any other railroad‖]; City of New Orleans Public Belt Ry. Comm. v.

Southern Scrap Material Co. (E.D.La. 1980) 491 F.Supp. 46, 48; see also International

Long. Ass‟n, AFL-CIO v. North Carolina Ports Auth. (4th Cir. 1972) 463 F.2d 1, 3-4.)

More generally (albeit in the context of a claim under the Federal Employers‘

Liability Act), the high court has said it would not ―throw into doubt‖ prior decisions

―holding that the entire federal scheme of railroad regulation applies to state-owned

railroads.‖ (Hilton v. South Carolina Public Railways Comm‟n (1991) 502 U.S. 197,

203, italics added; see also Transportation Union v. Long Island R. Co. (1982) 455 U.S.

678, 685, 687-689 [applying National League of Cities v. Usery (1976) 426 U.S. 833

(which later was overruled in Garcia, supra, 469 U.S. 528), and concluding that because

state operation of railroads is not an integral part of traditional state activities, there was

no 10th Amend. violation in applying federal railroad labor law to a state-owned

railroad]; California v. Taylor (1957) 353 U.S. 553, 567 [federal Railway Labor Act was

intended ―to apply to any common carrier by railroad engaged in interstate transportation,

whether or not owned or operated by a State‖]; Int. Com. Comm. v. Detroit & Railway

Co. (1897) 167 U.S. 633, 642 [state railroad is a common carrier subject to the Interstate

Commerce Act and its prohibition on discriminatory rates].)

The STB certainly asserts and exercises jurisdiction over state and municipally

owned rail lines — as it has done in this case. The STB has asserted that authority in a

case involving another public project in California. (See California High-Speed Rail

(Footnote continued on next page)

57

self-governance extending over how its own subdivisions would enter a business and

make decisions a private owner could decide how to make for itself would be considered

preempted regulation of rail transportation within the meaning of the preemption clause.

The Court of Appeal rejected the Nixon analysis on the ground that whereas in

Nixon there was ambiguity in the statutory phrase ―any entity‖ (Nixon, supra, 541 U.S. at

p. 133), leaving room for the presumption that Congress would not interfere with state

sovereignty to the extent of displacing state authority over municipalities unless it made

its purpose unmistakably clear, in the case of the ICCTA, there is no ambiguity.

According to the Court of Appeal, the ICCTA preempts all laws that have the effect of

managing or governing rail transportation, a definition the court believed encompassed

CEQA. The Court of Appeal maintained that Congress has authority under the

commerce clause to regulate rail transportation, and that ―[i]f Congress has the authority

under the [c]ommerce [c]lause to act, that action does not invade ‗the province of state

sovereignty preserved by the Tenth Amendment. [Citations.] The ICCTA‘s preemption

of CEQA as a preclearance requirement to railroad operations does not violate the Tenth

Amendment.‖

(Footnote continued from previous page)

Authority, Petition (STB, Dec. 12, 2014, No. FD 35861) 2014 WL 7149612, p. * 11.)

Prior authority is in accord. (North San Diego, supra, 2002 WL 1924265, pp. * 5, * 6

[public-agency-owned rail carrier could not be required to obtain a coastal development

permit under the California Coastal Act or to prepare an environmental report prior to

construction of a passing track]; see also Alaska R. Corp., Exemption (STB, Jan. 5, 2010,

No. FD 34658) 2010 WL 24954, p. * 1; California High-Speed Rail Authority,

Exemption, supra, 2013 WL 3053064; South Carolina Division of Public Railways d/b/a

Palmetto Railways, Exemption (STB, Sept. 10, 2013, No. FD 35762) 2013 WL 4879234;

State of North Carolina, Exemption (STB, Apr. 15, 1998, No. FD 33573) 1998 WL

191270; Morristown & Erie Railway, Inc., Certificate (STB, June 22, 2004, No. FD

34054) 2004 WL 1387314, pp. * 3, * 4 [discussing STB regulations implementing NEPA

in context of railroad owned by the state and operated by a county].)

58

We believe this analysis fails to grapple with the status of the state as the owner of

the railroad line, and the related question of the freedom of action afforded to owners

under the deregulatory aspect of the ICCTA. It also fails to abide by the presumption

established in Nixon and Gregory — that federal preemption does not trench on essential

state sovereignty and self-governance without unmistakably clear language to that effect

— and mistakenly suggests that just because Congress has power to assert preemptive

control over an area of commerce, the existence of such power means that it necessarily

has preempted control even as to areas of traditional state sovereignty. We believe the

analysis must be more nuanced, and that the appropriate presumptions must be invoked.

Where owners are free from regulation, this freedom belongs to both public and private

owners. When there is state ownership, we do not believe it constitutes regulation when

a state applies state law to govern how its own state subsidiary will act within the area

free of STB and ICCTA regulation.

We acknowledge that the STB apparently applies the same sweeping preemption

to state and local environmental rules even when the rail carrier is publicly owned. (See

North San Diego, supra, 2002 WL 1924265, pp. * 5, * 6 [publicly owned rail carrier

could not be required to obtain a coastal development permit under the California Coastal

Act or to prepare an environmental report prior to construction of a passing track].) And

in a divided opinion now on appeal, the STB concluded specifically that the ICCTA

preempts any application of CEQA to what appears to be a publicly owned high-speed

rail project in California. (California High-Speed Rail Authority, Petition, supra, 2014

WL 7149612, p. * 7.) Although the California High-Speed Rail Authority in that case

had petitioned only for a declaration that the ICCTA preempts injunctive relief under

CEQA that could prevent or delay construction of the line, and though the authority

observed that it did not seek preemption of other remedies such as an order requiring a

revised EIR or additional mitigation so long as there would be no work stoppage, the

STB majority filed a much broader decision. It concluded that CEQA is ―categorically

59

preempted‖ because its application to new rail construction would impinge on the

―[STB]‘s exclusive jurisdiction over rail transportation‖ and constitute an attempt ―to

regulate a project that is directly regulated by the [STB].‖ (Ibid.) The STB majority held

that CEQA is, in fact, an environmental permitting or preclearance provision that should

be entirely preempted as to railroads, relying largely on Auburn, supra, 154 F.3d 1025,

and the Court of Appeal decision in the present case. A dissent to the STB‘s decision

objected that it was unnecessarily broad and that the authority should be held to its prior

voluntary commitments to follow CEQA. (California High-Speed Rail Authority,

Petition, supra, at p. * 13 (dis. statement of Begeman, Comr.).)8 But these decisions on

the part of the STB did not consider the deregulatory aspect of the ICCTA and the

different way in which deregulation affects public and private rail lines. We are not

bound to follow them.

c. The market participant doctrine

There is another interpretive presumption, namely the market participant doctrine,

that plaintiffs assert would lead to a conclusion that there should be no preemption of

CEQA here. The doctrine acknowledges that in some circumstances, states may be

acting not as regulators of others, but as participants in a marketplace who themselves

need to deal with private parties to obtain services or products. In this proprietary

capacity they generally should have the same freedom as private actors in the market, just

as they must ordinarily carry the same burdens. (Reeves, Inc. v. Stake (1980) 447 U.S.

429, 439 (Reeves) [state, which owned and operated a cement plant, was permitted to sell

preferentially to in-state private purchasers; ―state proprietary activities may be, and often

8 A petition for reconsideration and request for stay was denied on the ground that a

majority of the STB could not agree on its disposition. (California High-Speed Rail

Authority, Petition (STB, May 4, 2015, No. FD 35861) 2015 WL 2070594.) The matter

is pending on appeal in the United States Court of Appeals for the Ninth Circuit.

60

are, burdened with the same restrictions imposed on private market participants.

Evenhandedness suggests that, when acting as proprietors, States should similarly share

existing freedoms from federal constraints, including the inherent limits of the Commerce

Clause‖ (fn. omitted)].)

Whereas the commerce clause of the federal Constitution implies a limitation on

state authority to interfere with interstate commerce, ―either through prohibition or

through burdensome regulation‖ (Hughes v. Alexandria Scrap Corp. (1976) 426 U.S.

794, 806), at the same time the Supreme Court has recognized the importance of state

sovereignty in the market sphere as well. The high court has cautioned that

notwithstanding the scope of Congress‘s authority under the commerce clause,

―[r]estraint in this area is . . . counseled by considerations of state sovereignty, the role of

each State ‗ ―as guardian and trustee for its people,‖ ‘ [citation], and ‗the long recognized

right of trader or manufacturer, engaged in an entirely private business, freely to exercise

his own independent discretion as to parties with whom he will deal.‘ [Citation.]‖

(Reeves, supra, 447 U.S. at pp. 438-439, fns. omitted.)

The high court has cautioned that whereas the market participant doctrine

acknowledges that a state can influence a discrete area of economic activity in which it

participates, the doctrine does not afford ―carte blanche to impose any conditions that the

State has the economic power to dictate, and does not validate any requirement merely

because the State imposes it upon someone with whom it is in contractual privity.

[Citation.] [¶] The limit of the market-participant doctrine must be that it allows a State

to impose burdens on commerce within the market in which it is a participant, but allows

it to go no further. The State may not impose conditions, whether by statute, regulation,

or contract, that have a substantial regulatory effect outside of that particular market.‖

South-Central Timber Dev. v. Wunnicke (1984) 467 U.S. 82, 97-98.)

Here, of course, we do not simply confront the inherent or implied limits imposed

by the commerce clause on state regulation, but an express preemption provision. The

61

market participant doctrine applies, however, in both situations. And when there is a

preemptive federal statute, a presumption as to its proper interpretation arises from the

market participant doctrine.

A congressional preemption clause ordinarily displaces regulatory action on the

part of states, but the high court has held that it is unlikely that Congress also meant to

reach the proprietary conduct of the states. (Boston Harbor, supra, 507 U.S. at pp. 231-

232; Wisconsin Dept. of Industry v. Gould Inc. (1986) 475 U.S 282, 290 (Gould).) At the

same time, reviewing courts must remain aware of the special power of the state in the

marketplace. The high court in Gould, supra, 475 U.S. 282, for example, acknowledged

that even state purchasing decisions involving private contractors may in some

circumstances have such an impact in the marketplace as to be regulatory. (Id. at p. 290.)

Thus in Gould, a Wisconsin statute under which state purchasing agents were barred from

expending state funds to contract with private employers who had repeatedly violated the

National Labor Relations Act (NLRA) was essentially regulatory and therefore was

preempted under the NLRA. The state law imposed a ―supplemental sanction‖ on NLRA

violations by private employers (id. at p. 288), and was inconsistent with congressional

intent to prevent states from ―providing their own regulatory or judicial remedies for

conduct prohibited or arguably prohibited by the Act.‖ (Id. at p. 286.)

But even in the context of the NLRA and state contracts with private actors, the

high court has confirmed the vitality of the market participant doctrine. Under certain

circumstances involving a state as owner of property or purchaser of goods or services,

the high court has acknowledged that the public entity may be permitted to ―manage its

own property when it pursues its purely proprietary interests . . . where analogous private

conduct would be permitted‖ and is not seen thereby to be engaging in regulatory

conduct. (Boston Harbor, supra, 507 U.S. at p. 231, italics added.) ―When a State owns

and manages property, for example, it must interact with private participants in the

62

marketplace. In so doing, the State is not subject to pre-emption by the NLRA, because

pre-emption doctrines apply only to State regulation.‖ (Id. at p. 227.)

The Supreme Court in Boston Harbor distinguished Gould, supra, 475 U.S. 282,

explaining that the Gould rule addressed a state agency‘s attempt, through limitations on

state expenditures, to compel NLRA compliance on the part of a private employer — a

matter ―unrelated to the employer‘s performance of contractual obligations to the State‖

but rather demonstrating an intent to deter NLRA violations. (Boston Harbor, supra, 507

U.S. at p. 229.)

The high court in Boston Harbor also pointed out that it was merely permitting the

public entity to act in the same way any other proprietor could act. The disputed

contract in that case was between public and private entities and involved a development

project. The contract‘s prehire provisions, challenged as regulatory, would actually be

permitted under the NLRA in private contracts in the construction industry, and the same

freedom was contemplated when the public entity acted as a proprietor and market

participant. (Boston Harbor, supra, 507 U.S. at p. 231.) The court said: ―To the extent

that a private purchaser may choose a contractor based upon that contractor‘s willingness

to enter into a prehire agreement, a public entity as purchaser should be permitted to do

the same.‖ (Ibid., italics omitted.)

Boston Harbor reflects a situation in which the state can interact in the

marketplace in the same way as a private actor without being considered as engaging in

preempted regulatory conduct. By contrast, when the state engages with private persons

in the marketplace with tools that are not available to private actors, the high court has

viewed this as regulatory, and therefore the state‘s action will be preempted. (American

Trucking, supra, ___ U.S. ___, ___ [133 S.Ct. at p. 2103] [federal law preempts a

municipal entity‘s requirement of its private lessees that they impose certain contractual

terms on private parties on pain of potential misdemeanor prosecution].)

63

Unlike plaintiffs, we do not find the market participant doctrine fully on point,

because it ordinarily is used to analyze preemption when a state interacts with private

parties as a participant in a private marketplace for goods, labor, or services. When a

state engages in the private marketplace on terms available to any other proprietor, it may

be presumed that such conduct is not regulation in the sense ordinarily meant by federal

preemption provisions. Here, by contrast, our focus is not on the state‘s interactions with

the private railroad marketplace, or even on its interactions with its private lessee,

NWPCo, but on the state‘s ability to govern the state‘s own subsidiary, NCRA — the

governmental subdivision of the state through which the state proposes to enter into and

engage with the railroad marketplace.

Nevertheless, elements of the case law concerning the doctrine are instructive.

One useful element is related to our earlier discussion of Nixon, supra, 541 U.S. 125, and

Gregory, supra, 501 U.S. 452, in that, similarly, it is based in part on the presumption

that Congress will not interfere lightly with state sovereignty. Furthermore, the market

participant doctrine also instructs, in part, that because states operating in a private

marketplace are subject to the same burdens imposed by Congress on private proprietors,

courts will presume that Congress would afford states, as proprietors, the same freedoms

as private proprietors. These ideas are useful because in a sense, application of CEQA is

not solely a matter of self-governance by the state. CEQA can be seen as an expression

of how the state, as proprietor, directs that a state enterprise will be run — an expression

that can be analogized to private corporate bylaws and guidelines governing corporate

subsidiaries. To the extent a private corporate parent would have a zone of freedom

under the ICCTA to govern how its subsidiaries will engage in the railroad business —

including the freedom to direct them to undertake environmental fact finding as a

condition of approving or going forward with their projects — the state presumably has

the same sphere of freedom of action.

64

To make this point more concrete, we provide a hypothetical example. A private

corporate conglomerate might require its subsidiaries, including its rail subsidiary, to

perform environmental studies to discover what climate impacts a proposed project may

have, to identify liabilities in the event of the adoption of a federal carbon tax or, on the

asset side of the ledger, the availability of greenhouse gas credits for a project with

climate benefits in the event of the establishment of a broad cap-and-trade system. A

corporate conglomerate could make the results of environmental study one element of the

cost-benefit analysis it requires of its subsidiary or an element of its own retained control

over the subsidiary. To ensure accomplishment of its own sustainability goals, or even as

a matter of public relations, a corporation, as part of its internal governance policies or its

bylaws, could adopt a process that permitted shareholder or stakeholder challenges to its

handling of the environmental review process. In our view, the application of CEQA to

NCRA proceedings and decisions would perform a similar decisionmaking function and

afford similar enforcement mechanisms. We see little reason to suppose that when

Congress forbade states to regulate rail transportation, it meant to prevent states, as

owners of railroad lines, to have the freedom of action we believe would be retained by

private businesses under the ICCTA.9

9 The Court of Appeal in the present case rejected plaintiffs‘ reliance on the market

participant doctrine because petitioner‘s suit to enforce CEQA was not itself a proprietary

activity in the marketplace: ―NCRA, a political subdivision of the state, undertook a

project to reopen the Russian River Division of the line. As part of that project, it

prepared an EIR, which is now challenged by [plaintiffs] as inadequate. Even if the

project to reopen the line is viewed as proprietary and the initial decision to prepare the

EIR a component of this ‗proprietary‘ action, a writ proceeding by a private citizen‘s

group challenging the adequacy of the review under CEQA is not a part of this

proprietary action.‖ We do not believe that the market participant doctrine applies solely

to enforcement actions that are themselves literally proprietary or commercial conduct in

the market. This was certainly not the case in Boston Harbor, supra, 507 U.S. 218, for

example. Rather, what is critical is whether the state is engaged in proprietary or

(Footnote continued on next page)

65

F. NWPCo

Despite our conclusion concerning NCRA, we agree with the Court of Appeal that

CEQA causes of action cannot be the basis for an injunctive order directed specifically at

NWPCo to halt NWPCo‘s freight operations — a form of relief that falls within

plaintiffs‘ prayer. Such an application of state law would be tantamount to the operation

of state environmental preclearance rules that the Auburn court and others have agreed

cannot be used to halt railroad operations pending compliance. (See, e.g., Auburn, supra,

154 F.3d 1025.) The Gregory-Nixon presumption regarding congressional intent would

not be fully applicable, either, since the order directly restraining NWPCo from operating

freight service pending CEQA compliance 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.

(Footnote continued from previous page)

essentially regulatory conduct, with special attention to whether the same enforcement

tools would be available to private parties.

The Court of Appeal also implied that the doctrine can be applied solely as a

shield by a state seeking to avoid preemption, and not as a sword for citizens seeking to

enforce state law. As our discussion above indicates, however, the market participant

doctrine is an aspect of a preemption question, which is a question of law. (See Farm

Raised Salmon Cases (2008) 42 Cal.4th 1077, 1089, fn. 10 [preemption as question of

law].) Application of the market participant doctrine turns on congressional intent

underlying the preemption clause under review, and on whether the state is involved in

essentially regulatory behavior. Because these questions of law simply lead a court to the

proper interpretation of a federal statute, we are not persuaded the market participant

doctrine cannot be raised simply because plaintiffs are not a state or local entity wishing

to shield assertedly proprietary activity from federal preemption. Indeed, the Court of

Appeal‘s interpretation would lead to the anomaly that the scope of the federal

enactment‘s preemption would turn on the litigation strategy of individual states. It

seems unlikely that the ICCTA‘s purpose contemplated preempting local law in one state

but not preempting an identical statute in another state, based merely on the state‘s

appearance or nonappearance in litigation.

66

Nor would the market participant doctrine apply to prevent preemption. Even if

the state is a participant in the railroad market, when the state uses enforcement

mechanisms that would not be available to a private party, this ordinarily constitutes

regulation. The mechanism sought to be used here — public entity proceedings on a

project pursuant to CEQA — is not a mechanism that private market actors could create

and require of others. That is, although a private actor, by contract, could condition

performance on compliance with specified environmental norms, that private actor would

be unable, even by contract, to create and implement a system of government

proceedings. Only the government can create and administer such a system. In this way,

application of CEQA to enjoin NWPCo from operating rail service pending NCRA‘s

CEQA compliance would run afoul of the teaching of American Trucking. This, like the

possibility of criminal sanctions in that case, is not a tool ―that the owner of an ordinary

commercial enterprise could mimic.‖ (American Trucking, supra, ___ U.S. at p. ___

[133 S.Ct. at p. 2103].) Nor does plaintiffs‘ reliance on the Engine Manufacturers

decision assist them, since that decision permitted state control over the state‘s own

internal purchasing decisions, but did not extend to permitting regulation of private third

parties. (Engine Manufacturers, supra, 498 F.3d at pp. 1045-1046, 1048.) Thus it

appears that plaintiffs cannot rely upon CEQA as a basis for an injunction directed at

NWPCo to halt its operations. Whether NWPCo would be able to carry on with service

despite the application of CEQA to NCRA is a question that is beyond the scope of this

case. We also agree with the Court of Appeal that in the current litigation, plaintiffs did

not preserve any contract claim.

At the same time, the conclusion that a CEQA cause of action cannot be the basis

for an order halting NWPCo‘s operations does not require us to conclude CEQA is also

preempted as applied to NCRA in this case. Even if CEQA is preempted as applied to

halt NWPCo‘s freight operations because in that context CEQA is essentially regulatory,

the application of CEQA, as a matter of self-governance, to the state‘s own railroad

67

project is not. This result is evident as a matter of legislative intent, since CEQA contains

a severability clause that is written in broad terms: ―If any provision of this division or

the application thereof to any person or circumstances is held invalid, such invalidity

shall not affect other provisions or applications of this division which can be given effect

without the invalid provision or application thereof, and to this end the provisions of this

division are severable.‖ (Pub. Resources Code, § 21173, italics added; cf. NFIB v.

Sebelius (2012) 567 U.S. 519 [giving effect to a similarly worded severability

provision].) The severability clause establishes a presumption that the Legislature

intended that the invalid (here, the preempted) applications be severed from the valid

(nonpreempted) ones. Insofar as CEQA governs projects ―directly undertaken‖ by public

entities (Pub. Resources Code, § 21065, subd. (a)), its provisions appear to be capable of

operating independently. And to sever the preempted applications of CEQA from the

nonpreempted applications is consistent with our repeated recognition that ―CEQA is to

be interpreted ‗to afford the fullest possible protection to the environment within the

reasonable scope of the statutory language.‘ ‖ (Mountain Lion Foundation, supra, 16

Cal.4th at p. 112.)

Applying CEQA and its remedies to NCRA (but not to NWPCo) may have some

impact on the private party, but this is merely derivative of the state‘s efforts at self-

governance in this marketplace. We see the two entities as distinct for the purposes of

preemption, at least in circumstances where the ICCTA leaves a regulatory hole which

owners are free to exploit to their own advantage.

68

III. Conclusion

The ICCTA preempts state regulation of rail transportation. In this case, the

application of CEQA to NCRA would not be inconsistent with the ICCTA and its

preemption clause. This is both because we presume Congress does not intend to disrupt

state self-governance without clear language to that effect, and because the ICCTA leaves

a relevant zone of freedom of action for owners that the state, as owner, can elect to act in

through CEQA. We conclude that the judgment of the Court of Appeal should be

reversed and the matter remanded for further proceedings consistent with this opinion.

CANTIL-SAKAUYE, C. J.

WE CONCUR:

WERDEGAR, J.

CHIN, J.

LIU, J.

CUÉLLAR, J.

KRUGER, J.

69

CONCURRING OPINION BY KRUGER, J.

I agree with the majority that, in the context of the activities of a public rail

authority, the California Environmental Quality Act (CEQA; Pub. Resources

Code, § 21000 et seq.) is not categorically preempted as a ―regulation of rail

transportation‖ within the meaning of the ICC Termination Act of 1995 (ICCTA;

49 U.S.C. § 10501(b)). As it applies in this context, CEQA represents a set of

obligations the State of California has voluntarily assumed in conducting its own

operations, and it functions as a rule of internal state governance that the North

Coast Railroad Authority — much as every other California public agency —

must follow with respect to all projects it undertakes. (See, e.g., Pub. Resources

Code, §§ 21001.1, 21065, subd. (a), 21150, 21151.) I agree with the majority that

the Congress that enacted the ICCTA could not have intended to broadly displace

state laws governing how states and their subdivisions carry out their own

projects. (See maj. opn., ante, at pp. 45–65.)

This decision clears the way for the courts below to begin considering the

merits of plaintiffs‘ CEQA claims, which the courts had previously found to be

preempted by the ICCTA as a categorical matter. That is not to say that the

ICCTA is irrelevant to the proceedings on remand, however. The parties and

amici curiae have argued that particular CEQA remedies might be preempted by

the ICCTA to the extent the remedy is one that unreasonably interferes with the

jurisdiction of the Surface Transportation Board, which has authorized service

1

over the rail line in question. (Cf., e.g., Wedemeyer v. CSX Transportation, Inc.

(7th Cir. 2017) 850 F.3d 889, 895 [a remedy may be preempted ― ‗as applied‘ . . .

if [it] would have the effect of preventing or unreasonably interfering with railroad

transportation‖]; California High-Speed Rail Authority, Petition (STB, Dec. 12,

2014, No. FD 35861) 2014 WL 7149612, p. *8 [opining that even voluntary

agreements may be preempted to the extent they unreasonably interfere with

interstate commerce or rail operations].) I do not read the majority opinion to

foreclose such arguments on remand. (Cf., e.g., maj. opn., ante, at pp. 47, 67.)

With these observations, I join the majority opinion.

KRUGER, J.

2

DISSENTING OPINION BY CORRIGAN, J.

I respectfully dissent. The majority properly explains why any application

of the California Environmental Quality Act (CEQA) that interrupts rail service

would be preempted by the ICC Termination Act (ICCTA). (Maj. opn., ante, at

pp. 34-41; see Pub. Resources Code, § 21000 et seq. (CEQA); 49 U.S.C. § 10101

et seq. (ICCTA).) The majority acknowledges that no CEQA remedy can be

imposed on the Northwestern Pacific Railroad Company (NWPCo) in this case.

(Maj. opn., ante, at pp. 66-67.) However, it reasons that as applied to the North

Coast Railroad Authority (NCRA), a state agency, CEQA is not a ―regulation‖ but

a mere act of ―self-governance.‖ (Id. at p. 20; see id. at pp. 45-65.) I do not

follow that logic.

There is no difference in CEQA procedures as they apply to projects

undertaken by public agencies, as opposed to private projects over which an

agency has power of approval.1 The proposition that a law of general application

1 A project subject to CEQA is ―an activity which may cause either a direct

physical change in the environment, or a reasonably foreseeable indirect physical

change in the environment, and which is any of the following:

―(a) An activity directly undertaken by any public agency.

―(b) An activity undertaken by a person which is supported, in whole or in

part, through contracts, grants, subsidies, loans, or other forms of assistance from

one or more public agencies.

―(c) An activity that involves the issuance to a person of a lease, permit,

license, certificate, or other entitlement for use by one or more public agencies.‖

(Pub. Resources Code, § 21065.)

may be considered a ―regulation‖ of private activity, but not of public activity in

the same sphere, appears to be unsupported by precedent.2 Nor does the majority

explain how it is that the state is free to ―govern‖ itself by applying CEQA when it

undertakes a rail project, something ordinarily done by the private sector, but not

when exercising its permitting authority over a private rail project, which is a

quintessentially governmental function. The majority emphasizes the state‘s

―zone of autonomy‖ as a railroad owner. (Maj. opn., ante, at p. 47.) However,

neither NCRA nor any of the other state agencies involved in this case subscribe to

the self-governance theory. The majority‘s approach forces the state to undertake

a burden no private railroad owner must bear.

The majority recognizes that if a state decides to enter the railroad business,

it is subject to the same federal regulations as private carriers. (Hilton v. South

Carolina Public Railways Comm‟n (1991) 502 U.S. 197, 203; Transportation

Union v. Long Island R. Co. (1982) 455 U.S. 678, 685, 687-689; California v.

Taylor (1957) 353 U.S. 553, 566-567; maj. opn., ante, at pp. 57-58, fn. 7.)

Nevertheless, it concludes that ICCTA applies differently to public and private rail

operators. It attempts to minimize its disparate treatment of public operators by

reasoning that a private operator might choose to subject itself to an environmental

review process, and permit its shareholders or stakeholders to challenge its

handling of that process. (Maj. opn., ante, at p. 65.) Hypothetically, a corporation

might do that. But a challenge that had the effect of interfering with the operator‘s

obligations as a common carrier would be subject to Surface Transportation Board

(STB

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