Maryland Transit Administration v. Surface Transportation Board

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

MARYLAND TRANSIT 

ADMINISTRATION,

Petitioner,

v.  No. 11-1412

SURFACE TRANSPORTATION BOARD;

UNITED STATES OF AMERICA,

Respondents.



On Petition for Review of an Order of

the Surface Transportation Board.

(32609)

Argued: September 19, 2012

Decided: November 21, 2012

Before NIEMEYER and DIAZ, Circuit Judges, and

Max O. COGBURN, Jr., United States District Judge for

the Western District of North Carolina,

sitting by designation.

Petition for review denied by published opinion. Judge Nie-

meyer wrote the opinion, in which Judge Diaz and Judge

Cogburn joined.

2 MARYLAND TRANSIT ADMIN. v. SURFACE TRANSPORTATION

COUNSEL

ARGUED: W. Eric Pilsk, KAPLAN KIRSCH & ROCK-

WELL, LLP, Washington, D.C., for Petitioner. Erik G. Light,

SURFACE TRANSPORTATION BOARD, Washington,

D.C., for Respondents. ON BRIEF: Charles A. Spitulnik,

Allison I. Fultz, KAPLAN KIRSCH & ROCKWELL, LLP,

Washington, D.C., for Petitioner. Ignacia S. Moreno, Assis-

tant Attorney General, John E. Arbab, UNITED STATES

DEPARTMENT OF JUSTICE, Washington, D.C.; Raymond

A. Atkins, General Counsel, Evelyn G. Kitay, Associate Gen-

eral Counsel, SURFACE TRANSPORTATION BOARD,

Washington, D.C., for Respondents.

OPINION

NIEMEYER, Circuit Judge:

The Maryland Transit Administration ("MTA"), as the

owner of the railroad right-of-way running between Clayton,

Delaware, and Easton, Maryland, applied to the Surface

Transportation Board ("STB" or "Board") (formerly, the

Interstate Commerce Commission) to abandon freight trans-

portation use of the right-of-way and to convert it to a recre-

ational trail, as authorized by the National Trails System Act

("the Trails Act"), 16 U.S.C. § 1247. The Trails Act autho-

rizes owners of railroad rights-of-way to enter into agree-

ments with entities, called sponsors, under which the sponsors

agree to convert the right-of-way into recreational trails, so

long as they agree to reserve to the railroad the right to return

the right-of-way to railroad use. As part of the application for

conversion to trail use, the sponsors must agree to "assume

full responsibility . . . for any legal liability arising out of such

. . . use" or agree to indemnify the railroad for "any potential

liability" and assume responsibility for the payment of all

taxes assessed with respect to the right-of-way. 16 U.S.C.

§ 1247(d); 49 C.F.R. § 1152.29(a).

MARYLAND TRANSIT ADMIN. v. SURFACE TRANSPORTATION 3

The MTA submitted to the STB interim user agreements it

had reached with two sponsoring governmental agencies, in

which the sponsors agreed to indemnify the MTA for poten-

tial liability, subject to limitations of state sovereign immunity

and to future legislative appropriations. The STB rejected the

MTA’s application, concluding that instead of assuming full

responsibility for legal liability or indemnifying the MTA for

any potential liability, the proposed sponsors conditioned their

undertakings by subjecting them to sovereign immunity and

to future state legislative appropriations. The STB explained

that instead of assuming "full responsibility," the proposed

sponsors "offer[ed] the possibility of no" responsibility.

The MTA filed this petition for review, contending (1) that

the conditions imposed by the sponsors do "not narrow the

scope of the indemnity" that would be undertaken and that the

limitations of sovereign immunity and legislative appropria-

tions were necessary; (2) that by requiring an unqualified

indemnity clause, the STB’s regulation is, in any event, "an

unreasonable and impermissible construction of the Trails Act

because it infringes on state sovereignty without clear expres-

sion of congressional intent to do so"; and (3) that the STB

inappropriately refused to exercise its duty to evaluate the

substance of the sponsors’ undertakings by interpreting its

responsibilities to be only ministerial.

For the reasons we give herein, we find the MTA’s argu-

ments unpersuasive, especially in light of its burden to dem-

onstrate that the STB acted arbitrarily and capriciously. See 5

U.S.C. § 706(2). Accordingly, we affirm the decision of the

STB and deny the MTA’s petition for review.

I

The MTA acquired the 54.1-mile railroad right-of-way

between Clayton, Delaware, and Easton, Maryland, from the

trustees of the Penn Central Transportation Company in 1982

and later, for several years, tried to use it as a railroad through

4 MARYLAND TRANSIT ADMIN. v. SURFACE TRANSPORTATION

an operations agreement with the Chesapeake Railroad Com-

pany. After the Chesapeake Railroad Company failed, how-

ever, the MTA filed a notice with the STB that it intended to

abandon the use of the right-of-way for railroad transportation

and to covert the right-of-way to a recreational trail. As

required by the Trails Act and regulations under it, the MTA,

at the time also acting as a potential trail sponsor, included in

its notice a "statement of willingness" to assume "full respon-

sibility" for any legal liability arising out of the recreational

trail use and for the payment of any taxes that might be

assessed against the right-of-way.

The STB duly issued a "certificate of interim trail use"

("CITU") to the MTA in January 2006, thus giving MTA 180

days to negotiate a trail use agreement. Under the STB’s regu-

lations, any sponsor was required "to assume full responsibil-

ity . . . for any legal liability arising out of the use of the right-

of-way (unless the user is immune from liability, in which

case it need only indemnify the railroad against any potential

liability)" and "for the payment of all taxes assessed against

the right-of-way." 49 C.F.R. § 1152.29(a)(2).

After several extensions, in September 2008, the MTA

shifted course. Rather than assume direct responsibility as a

trail sponsor, the MTA submitted two new interim trail use

agreements to the STB, one with the Delaware Department of

Natural Resources and Environmental Control and one with

the Maryland Department of Natural Resources. The MTA

asked the Board to vacate the existing CITU and issue new

CITUs reflecting the new sponsors’ assumption of responsi-

bility. In each agreement the sponsor conditioned its under-

taking to indemnify the MTA from liability. The agreement

between the MTA and the Delaware sponsor provided:

Notwithstanding the requirements of subsection (a)

[providing for indemnity and liability], nothing con-

tained in this Agreement shall constitute or be

deemed to constitute an obligation of future appro-

MARYLAND TRANSIT ADMIN. v. SURFACE TRANSPORTATION 5

priations by the Delaware General Assembly. MTA

acknowledges that Licensee must obtain appropria-

tions prior to payment of any damages. A lack of

funds to perform any aspect of this Agreement due

to insufficient appropriation by the Delaware Gen-

eral Assembly shall not constitute a breach of this

Agreement.

(Emphasis added). In its "statement of willingness to assume

financial responsibility" submitted with the agreement, the

Delaware Department of Natural Resources reiterated the lim-

itation of its undertaking, stating that it "is entitled to sover-

eign immunity, and accordingly, will indemnify MTA against

any potential liability provided that such indemnification shall

not constitute or be deemed to constitute an obligation of

future appropriations by the Delaware General Assembly."

The agreement between the MTA and the Maryland spon-

sor provided similarly:

In order to establish interim trail use and rail banking

under 16 USC 1247(d) and 49 CFR 1152.29, Lessee

is willing to assume, under the provisions of the

Maryland Tort Claims Act, responsibility for . . . any

legal liability arising out of the Lessee’s use of the

Area as a public recreation rail trail.

***

Subject to appropriations by the Maryland General

Assembly and to the extent permitted by law (if at

all), Lessee shall protect, indemnify, defend and hold

harmless . . . Lessor . . . against and with respect to

any and all liabilities arising out of or in any way

connected with (a) the exercise or performance by

Lessee . . . , (b) the use or operation by Lessee

. . . , or (c) work performed by or on behalf of the

Lessee upon the Trail.

6 MARYLAND TRANSIT ADMIN. v. SURFACE TRANSPORTATION

(Emphasis added).

At the first level of review, the STB’s Acting Director of

the Office of Proceedings denied the MTA’s application to

convert the right-of-way to a trail because the sponsors failed

to comply with the undertakings required by Regulation

1152.29(a)(2). The Acting Director noted that subjecting the

sponsors’ agreements to indemnify the MTA to future appro-

priations and making any liability subject to sovereign immu-

nity could negate the required indemnification.

On appeal to the STB, the Board affirmed the Acting

Director. The Board noted that under the Trails Act, prospec-

tive trail sponsors are required to assume full responsibility

for "any legal liability" arising out of the use of the right-of-

way as a trail or, as authorized by regulation, to indemnify the

railroad for "any potential liability." It explained,

"[r]ecognizing that many States and their subdivisions enjoy

sovereign immunity, the Board’s regulations allow them to

satisfy the Trails Act by agreeing to indemnify the railroad

against ‘any potential liability.’" (Quoting 49 C.F.R.

§ 1152.29(a)(2)). The Board noted, however, that the Dela-

ware and Maryland sponsors "d[id] not satisfy the require-

ments of the Trails Act and [the STB’s] regulations." With

respect to the Delaware sponsor’s undertaking, the Board

pointed out that the sponsor’s willingness to indemnify the

MTA was "subject to the requirements of Delaware law" and

that the Delaware General Assembly "might not provide

funds in sufficient amounts to discharge [the sponsor’s] obli-

gations." And with respect to the Maryland sponsor’s under-

taking, the Board identified similar conditions, pointing out

that the Maryland sponsor would indemnify the MTA only

"under the provisions of the Maryland Tort Claims Act" and

"subject to appropriations by the Maryland General Assem-

bly." Further, the Maryland sponsor included the qualification

that it would indemnify the MTA only "to the extent permit-

ted by law (if at all)." Finally, the Board noted that the Mary-

land sponsor failed to include any undertaking to pay taxes

MARYLAND TRANSIT ADMIN. v. SURFACE TRANSPORTATION 7

that might be assessed against the right-of-way. In conclusion,

the Board explained that both sponsors "offer[ed] the possibil-

ity of no indemnification for the abandoning railroad" and

accordingly found that their undertakings did not comply with

the Trails Act and Regulation 1152.29(a)(2).

From the decision of the Board, dated February 24, 2011,

the MTA filed this petition for review. See 28 U.S.C. § 2344.

II

The MTA argues first that it satisfied the requirements of

the Trails Act and Regulation 1152.29(a)(2) insofar as it

included in its agreements with the two sponsors "indemnity

clauses that indemnified MTA for any legal liability MTA

might face due to the use of the right-of-way as a trail." It

asserts that the clauses did so in "plain language." But as

quickly as the MTA makes this assertion, it acknowledges, as

it must, that its agreements included "language to make clear

that the obligations of the [sponsors] were subject to the avail-

ability of funds pursuant to an appropriation from the legisla-

ture." It asserts that such language was "necessary to reflect

state constitutional limits." And it concludes:

Being unable to commit to a future payment does not

reduce the scope of the indemnity provision, nor

does it reduce [the sponsors’] liability under the

indemnity agreement. At most, the reservation

means that there may be a time in the future when

[the sponsors] would have to wait for a future appro-

priation before [they] could pay MTA’s indemnity

claim. But [the sponsors] have still undertaken to

indemnify MTA for any potential legal liability, as

the Trails Act requires. The limitations regarding the

ability to pay any indemnity claim are not inconsis-

tent with the Trails Act requirement that a trail spon-

sor assume responsibility for any "legal liability."

8 MARYLAND TRANSIT ADMIN. v. SURFACE TRANSPORTATION

It can hardly be argued that a requirement demanding that

a party assume full responsibility for any liability or indem-

nify the railroad for any potential liability is satisfied by a

promise to indemnify only if the principles of sovereign

immunity so allow or if the money becomes available pursu-

ant to future appropriations. As the Maryland sponsor can-

didly provided in its undertaking, its promise was "subject to

appropriations by the Maryland General Assembly and to the

extent permitted by law (if at all)." (Emphasis added).

We cannot conclude that the STB acted arbitrarily and

capriciously in concluding that the MTA user agreements,

which included qualifications to the undertakings, did not sat-

isfy the statutory and regulatory obligations that the sponsors

assume full responsibility for any liability or indemnify the

MTA for any potential liability.

III

As an alternative position, the MTA contends that "the

STB’s construction of the Trails Act would result in an imper-

missible requirement that States waive their sovereign immu-

nity." As it explains, "[T]he STB’s construction of the Trails

Act would require states to modify, waive, or ignore sover-

eign limits on their authority, as well as sovereign immunity

. . . . [T]he STB would require state agencies to execute an

unqualified indemnity provision even if doing so would vio-

late state constitutional limits." The MTA argues that Regula-

tion 1152.29, but not the Trails Act itself, requires the States

to waive sovereign immunity by including the alternative that

States and state agencies give unqualified indemnity. There-

fore, it maintains, the regulation is an unreasonable applica-

tion of the Trails Act.

The Trails Act provides that a sponsor must "assume full

responsibility . . . for any legal liability" arising from the use

of the right-of-way as a trail. 16 U.S.C. § 1247(d). The statute

thus conditions participation on the trail sponsor’s agreement

MARYLAND TRANSIT ADMIN. v. SURFACE TRANSPORTATION 9

to fully protect the railroad from liability arising from the use

of the right-of-way as a recreational trail. The STB, through

its Regulation 1152.29, found that the statutory requirement

could, for sponsors having immunity, be satisfied by the spon-

sor’s indemnifying the railroad for "any potential liability." 49

C.F.R. § 1152.29(a)(2). The indemnity agreement effectively

limits any state agency’s undertaking to a contractual obliga-

tion, much like the contractual undertaking a state agency

would make in any agreement into which it enters to rent

office space. Contrary to the MTA’s suggestion, the regula-

tion’s indemnity option is not an additional, more burdensome

condition; it addresses no more than the statute requires—the

full-protection of the railroad. The language of both the stat-

ute and the regulation requires state sponsors to protect the

railroads. If anything, the indemnity option is more friendly

to agencies having immunity than is the Trails Act, because

the Act, standing alone, would require a state to assume tort

liability directly. The regulation’s indemnity option thus

implements, in a reasonable manner, the Trails Act’s require-

ment that railroads be fully protected while also softening the

statute’s impact on sovereign immunity. Accordingly, we

reject the MTA’s claim that the regulation is unreasonable.

More importantly, however, the requirement to protect the

railroad does not, as the MTA suggests, impose on a sponsor-

ing state agency an unconstitutional requirement to waive its

sovereign immunity. That requirement is made a condition of

a federal benefit or gift that the state agency voluntarily elects

to receive, and we have long recognized that a state may be

required to "waive its sovereign immunity by accepting from

Congress a ‘gift’ or a ‘gratuity,’ the receipt of which is made

conditional on the State’s waiver of immunity." Bell Atl. Md.,

Inc. v. MCI WorldCom, Inc., 240 F.3d 279, 291 (4th Cir.

2001), vacated on other grounds sub nom. Verizon Md., Inc.

v. Pub. Serv. Comm’n of Md., 535 U.S. 635 (2002); see also

MCI Telecomm. Corp. v. Bell Atl.-Pa., 271 F.3d 491, 505 (3d

Cir. 2001).

10 MARYLAND TRANSIT ADMIN. v. SURFACE TRANSPORTATION

In the case of the Trails Act, Congress created the volun-

tary federal rails-to-trails program, authorizing but not requir-

ing railroad right-of-way owners and recreational trail

sponsors to agree to convert railroad rights-of-way into recre-

ational trails. For those electing to participate in the program,

the Act provides two main benefits. First, through the applica-

tion of federal law, the Act prevents reversionary property

interests from vesting, as it normally would following the

abandonment of the railroad use, thus preserving the right-of-

way for a trail use. See Preseault v. I.C.C., 494 U.S. 1, 8

(1990). Second, by authorizing the conversion, albeit on a

temporary basis, the federal government, not the States,

remains potentially liable to land owners for takings chal-

lenges based on the delayed vesting of reversionary interests

involved in railroad rights-of-way. See Nat’l Ass’n of Rever-

sionary Prop. Owners v. S.T.B., 158 F.3d 135, 139 (D.C. Cir.

1998). Because Congress had no obligation to bestow these

benefits on the States but made them available to the States

on a voluntary basis, they qualify as a federal gift. See Coll.

Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd.,

527 U.S. 666, 686 (1999) ("Congress has no obligation to use

its Spending Clause power to disburse funds to the States").

Indeed, the MTA has acknowledged the voluntary basis of the

program in its brief, stating that "participation in the Trails

Act program and its decision to enter into trail use agreements

with [the sponsors] are strictly voluntary."

In short, even if the MTA is correct in its understanding

that the Trails Act and Regulation 1152.29 mandate a waiver

of sovereign immunity, the waiver would only be required as

a condition of participating in the rails-to-trails program, a

voluntary program in which no State—and indeed, no railroad

—is forced to participate. See Nat’l Wildlife Fed’n v. I.C.C.,

850 F.2d 694, 696 (D.C. Cir. 1988) (upholding a regulation

that interpreted the Trails Act as requiring all transfers of

rights-of-way to be voluntary).

MARYLAND TRANSIT ADMIN. v. SURFACE TRANSPORTATION 11

IV

Finally, the MTA contends that the STB improperly dis-

charged its duties under the Trails Act by functioning only

ministerially, refusing to evaluate the substance of its prof-

fered indemnity provisions in the light of applicable state law.

It relies on the STB’s explanation of its role given in its deci-

sion to deny the MTA’s application, where the STB stated:

To fulfill our ministerial role under the Trails Act,

we need not parse the intricacies of Maryland and

Delaware immunity law. Rather, we merely verify

that the prospective trail sponsor has submitted the

required documentation to comport with the statute

and regulations.

(Emphasis added).

But the STB did not function as mechanically as the MTA

claims. In its 11-page opinion, the Board, in some detail,

expressed not only its reasons for concluding that the MTA

did not satisfy the requirements of the Trails Act and Regula-

tion 1152.29, but it explained the various policies underlying

the requirements and making them important. In addition, the

Board considered separately each of the MTA’s arguments

and explained why it found the arguments to be unpersuasive.

To be sure, the Board did explain that it was functioning min-

isterially, but it said so in the context of recognizing that it

could not alter the plain requirements of the Trails Act and

Regulation 1152.29. In reviewing the Board’s thorough deci-

sion, we conclude that the MTA’s argument is not well taken.

Moreover, there would be nothing to render illegal an agen-

cy’s adoption of regulations that restrain the degree of discre-

tion it exercises. See Am. Hosp. Ass’n v. NLRB, 499 U.S. 606,

612 (1991) ("[E]ven if a statutory scheme requires individual-

ized determinations, the decisionmaker has the authority to

rely on rulemaking to resolve certain issues of general appli-

12 MARYLAND TRANSIT ADMIN. v. SURFACE TRANSPORTATION

cability unless Congress clearly expresses an intent to with-

hold that authority"). If the agency, through rulemaking,

decides to remove discretion from its determinations, then it

appropriately relegates to itself a ministerial role. See Swan v.

Clinton, 100 F.3d 973, 977 (D.C. Cir. 1996) ("A ministerial

duty is one that admits of no discretion, so that the official in

question has no authority to determine whether to perform the

duty") (citing Mississippi v. Johnson, 71 U.S. (4 Wall.) 475,

498 (1866)).

Here, in promulgating 49 C.F.R. § 1152.29, the Board par-

roted the language of the Trails Act but included, as an alter-

native to assuming full responsibility for any liability, the

right of a state sponsor to indemnify the railroad for any

potential liability. The need for assuming full financial

responsibility by either means was, however, demanded by

the Act. Thus, when the Board made the individualized deci-

sion in this case, it simply confined its role to verifying the

trail sponsors’ undertakings and concluding that because the

trail sponsors qualified their indemnifications of the railroad,

they did not provide the railroad with the protection required

by the Trails Act. We cannot conclude that this decision man-

ifested an improper discharge of the agency’s duties.

For the reasons given, we affirm the decision of the STB

and deny the MTA’s petition for review.

IT IS SO ORDERED.