Court Rulings May Delay California High Speed Rail

Court Rulings May Delay California High Speed Rail

August 02, 2017  | Jeff Davis

Updated August 4, 2017 to cover the August 2 federal court ruling.

A pair of recent court rulings have opened the way for numerous lawsuits against the California high-speed rail project under the auspices of the famously lawsuit-friendly California Environmental Quality Act of 1970 (CEQA).

The California Supreme Court ruled on July 27 that railroads owned by the state government are still subject to state environmental laws, not just federal environmental laws, even though federal jurisdiction over railroads applies in some other contexts. While the California High Speed Rail Authority (CHSRA) was not a party to this lawsuit (Friends of the Eel River v. North Coast Railroad Authority), it has clear application to CHSRA, a state agency, and could cause significant delays in the state’s $64 billion high-speed rail project. In particular, there are three outstanding lawsuits against CHSRA that were stayed pending this case and which will now resume.

A week later, on August 2, the federal Ninth Circuit Court of Appeals ruled that a 2014 opinion by the federal Surface Transportation Board (STB), which held that federal law completely preempted CEQA in relation to the California high-speed rail project, was “purely advisory” and “in no way binding.” This leaves CEQA procedures firmly in place for the high-speed rail project.

Background. The National Environmental Policy Act of 1969 (NEPA) requires all construction projects under federal jurisdiction to conduct an environmental impact statement proceeding. CEQA was modeled after NEPA but has been amended over the years and clarified by court rulings so that it is now much more restrictive on project sponsors than is NEPA.

In particular, federal courts have repeatedly ruled that NEPA provides only procedural due process – the content of the statement or plan is much less relevant than whether or not the proceedings that developed the plan went according to law. But CEQA now also carries substantive mandates on the state government as well. A 2006 California Supreme Court opinion held that:

CEQA does not authorize an agency to proceed with a project that will have significant, unmitigated effects on the environment, based simply on a weighing of those effects against the project’s benefits, unless the measures necessary to mitigate those effects are truly infeasible.

(See this law article for more information on CEQA divergence from NEPA.)

California Supreme Court ruling. Last week’s case involved a railroad (North Coast Railroad Authority) owned by the State of California. The railroad had argued, and a lower appeals court agreed, that since the federal Interstate Commerce Commission Termination Act (ICCTA) of 1995 (which replaced the century-old Interstate Commerce Act with mostly identical language in title 49 U.S.C.) gave the federal Surface Transportation Board (STB) “jurisdiction over transportation by rail carrier…between a place in…a State and a place in the same or another state as part of the interstate rail network,” a North Coast project only had to follow NEPA procedures and not CEQA as well.

The Court disagreed:

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.

So how does this apply to the high speed rail project?

For starters, let’s look at the amicus brief that California’s then-Attorney General, Kamala Harris, filed in the North Coast case on CHSRA’s behalf in July 2015. The brief says:

…the express preemption clause in 49 U.S.C. section 10501(b) of [ICCTA] applies to a California public agency railroad that, absent preemption, would be subject to remedies under [CEQA], as sought here. The Authority acknowledges that it is unusual for a state agency to concede that one of its laws is preempted…In the case of this specific federal statute and how it applies to the high-speed rail project, it is in the State’s interest to support federal preemption of state-law remedies. To be successful in an integrated interstate rail system, a public agency railroad must be subject to the same regulatory scheme as other railroads. Preemption in this narrow context furthers the Authority’s ability to achieve the transportation, environmental, and economic benefits the high-speed rail system has to offer.

The court specifically rejected this argument on the general grounds that a state agency cannot escape CEQA solely because that state agency happens to run a railroad.

Pages 59-60 of the Supreme Court’s opinion mention CHSRA directly in the context of another lawsuit. The STB ruled in December 2014 that “CEQA is categorically preempted by [49 U.S.C.] § 10501(b) in connection with the [high speed rail] Line.” The California Supreme Court opinion notes that the STB action was “a divided opinion now on appeal” and specifically cites Ann Begeman’s dissent, which said that she “cannot support moving a significant piece of the Authority’s decision-making beyond the reach of the people whose interests the Authority purportedly serves.”

Ninth Circuit ruling. That case is Kings County et al v. Surface Transportation Board, and the federal Ninth Circuit Court of Appeals issued a ruling on August 2 after hearing oral arguments on July 12 before a three-judge panel. Much of the oral argument related to the pending California Supreme Court decision in North Coast case and the effect it might have on the Ninth Circuit’s deliberations. It appeared from the argument that the Ninth Circuit was going to wait for the California Supreme Court to rule in the other case before moving forward.

Kings County and other anti-CHSRA groups filed the lawsuit to ask federal courts to overturn the STB’s December 2014 ruling that federal law categorically preempted the application of CEQA to the California high-speed rail project. The Ninth Circuit this week dismissed the Kings County lawsuit. On its face, that action would appear to be a victory for CHSRA and the STB and a defeat for Kings County – except that the Ninth Circuit dismissed the lawsuit on grounds of mootness because the STB’s ruling was legally meaningless.

The Ninth Circuit held that it only has jurisdiction over “rules, regulations, and final orders” of the STB, and that for an order to be final, its must mark the “consummation” of the agency’s decisionmaking process and must also be an order that determines rights and obligations or from which legal consequences will flow. The court held that the STB’s December 2014 CEQA order was not, actually, a “final order”:

While it could be said that, in some sense, the agency has completed its decisionmaking process because it does not propose to do anything further at this time, it cannot be said that any rights or obligations have been determined or that legal consequences will flow from the Declaratory Order. On the contrary, the Declaratory Order is purely advisory and, therefore, is not final…

That is shown by the terms of the Declaratory Order itself, where the Board stated that its purpose was merely to: “provide [its] views on the preemption issue”7; “inform interested parties and the California Supreme Court of [its] views”8; and “assist in the resolution of [a] conflict.” It went on to explain that it was not speaking to issues of funding, or whether the Authority had “to comply with [the California Environmental Quality Act] as a condition of its funding.”

The Declaratory Order itself bound no one, not even the Board, and was merely an expression of views which the California Supreme Court and others “had absolute discretion to accept or reject.” Bennett, 520 U.S. at 178, 117 S. Ct. at 1169. We have neither Constitutional jurisdiction nor statutory jurisdiction because the Declaratory Order was not final. Expressing our views regarding that order would amount to an advisory opinion, which would not resolve “concrete legal issues, presented in actual cases, not abstractions.” Therefore, we must dismiss the petition.

This result was telegraphed during the oral arguments – the Ninth Circuit judges did not seem satisfied with the STB counsel’s explanation of whether or not the STB’s blanket statement of jurisdiction was advisory or substantive – see the video starting around the 20 minute mark.

What next? It should be emphasized that to the extent that the California Supreme Court’s opinion only interprets state laws like CEQA, last week’s opinion cannot be appealed – state supreme courts are the final word on interpreting state law. One of the federal Ninth Circuit judges on July 12 asked the STB counsel, “if the California Supreme Court in that [North Coast] case decides that CEQA is not preempted, you won’t be able to appeal that?” STB counsel replied “That is correct, your honor.” The judge then responded, “All right…interesting legal strategy.”

Stuart Flashman, lead counsel for Kings County, said that once the Silicon Valley and Los Angeles route maps are made public next year, “there are likely to be a lot of people bent out of shape in those areas” who will then file CEQA lawsuits.

Construction for the initial construction segment between Fresno and Madera is now underway. The federal government provided $3.5 billion in FY 2009 stimulus and FY 2010 regular appropriations for the project, but once Republicans took back the House of Representatives in January 2011, all new appropriations for high-speed rail grants stopped. This came at a time when CHSRA’s November 2011 business plan was assuming that the federal government would provide another $48.8 billion in grants to complete the system.

After it became clear that no further federal grants could be relied on, the state decided to dedicate a share of the revenues from the state’s cap-and-trade carbon auctions to CHSRA. The cap-and-trade system was extended last month until 2030, and $500 million per year will be dedicated to CHSRA (in addition to the $9 billion in high-speed rail bonds approved by voters in 2008, most of which go to the initial Fresno to Bakersfield segment.

$500 million per year is not enough to build the whole high-speed rail system unless you want construction to take 120 years, so the hope of high-speed rail advocates is that slow-but-steady cap and trade revenues can be pledged as collateral for a giant loan, either from the federal RRIF program or from some private source.

However, as the San Francisco Chronicle recently noted, in order to get Republican votes for the cap-and-trade extension, Governor Brown had to agree to put a new constitutional amendment before voters that, if adopted next year, would require a re-vote in 2024 on how to spend the cap-and-trade money – and that re-vote would require two-thirds supermajorities in each chamber of the legislature, potentially giving the GOP a veto over future high-speed rail funding then (if there is a GOP left in California by that point).

The possibility that the cap-and-trade revenue stream could be cut off in 2024 may make it more difficult for CHSRA to get a mega-loan with those revenues pledged as collateral.

(Ed. Note: It is unclear if the renewed debate over federal preemption of California environmental law on interstate commerce grounds will affect the ongoing debate about federal preemption of California intrastate trucking law on interstate commerce grounds – the so-called “F4A” provisions in section 134 of the House FY 2018 transportation appropriations bill (H.R. 3353) and in the Fischer amendment to the Senate’s FAA reauthorization bill (S. 1405). See discussion in this article under the FMCSA header for details.)

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