Transportation December 2002 Surface Transportation Board Ruling Extends ICCTA Preemption to Transit Agency The Surface Transportation Board (STB) recently determined that a California transit agency is not required to obtain a state environmental permit prior to constructing a passing track for its commuter rail operations because such a state law requirement is preempted by the ICC Termination Act of 1995 (ICCTA). The ruling in North San Diego County Transit Development BoardPetition for Declaratory Order, Finance Docket No. 34111 (STB served Aug. 21, 2002), represents the first time that the STB has extended the scope of ICCTA preemption to a transit agency and confirms the potential applicability of ICCTA preemption to rail transit agencies involved in shared corridor projects with freight railroads. North San Diego County Transit Development Board d/b/a North County Transit District (NCTD) is a public transit agency that operates intrastate commuter rail service over a railroad line that it acquired in 1994 from a predecessor of the Burlington Northern Santa Fe Railway Company (BNSF). The NCTD railroad line also is used by Amtrak for intercity passenger rail service and by BNSF for common carrier freight rail service. In 1996, NCTD applied to the City of Encinitas (Encinitas) for the coastal development permit required under California law in order to construct a passing track adjacent to its railroad line. After public hearings, Encinitas determined that the preparation of an environmental report would be required in connection with the permit. Unwilling to expend the resources that might be required to prepare the environmental report, and fearing the loss of state funds for the project, NCTDs board voted to proceed with construction of the passing track without the permit. In August 2001, Encinitas filed an action for injunctive and declaratory relief in state court to prevent NCTD from constructing the passing track until it fulfilled the state permitting requirements.1 NCTD sought a declaratory order from the STB that Encinitas was prohibited from requiring NCTD to obtain the permit prior to construction as a result of the ICCTA preemption provision, 49 U.S.C. § 10501(b). Under this provision, the STB has exclusive jurisdiction over transportation by rail carriers and their construction of rail facilities and other federal or state laws with respect to such matters are preempted. NCTD argued that it is a rail carrier subject to STB jurisdiction as a result of its ownership and operation of an interstate rail line.2 In addition, NCTD asserted that the proposed passing track would benefit both passenger and freight service on the line. NCTD argued that its use of the line for intrastate commuter rail operations outside the STBs The action was removed to federal court by NCTD and docketed as City of Encinitas v. North San Diego County, Case No. 01-CV-1734-J (S.D. Cal.). 1 2 At the time of its acquisition of the railroad line, the STBs predecessor agency determined that NCTD was a rail carrier subject to federal jurisdiction as a result of the acquisition because it retained significant control over freight activities on the line. Kirkpatrick & Lockhart LLP jurisdiction does not divest the STB of exclusive and plenary jurisdiction over the freight rail services provided on the line by BNSF and construction of facilities that might benefit such services. Encinitas and the California Coastal Commission (collectively, Respondents) objected to NCTDs petition, contending that the passing track would solely benefit intrastate commuter rail operations outside the STBs jurisdiction. The Respondents also argued that the enforcement of applicable environmental permitting requirements was a legitimate exercise of their police powers under the Constitution and therefore not preempted by ICCTA. The parties made similar arguments in the parallel federal court proceeding. The federal court ruled on January 14, 2002 that the permit requirement was preempted by ICCTA. The court found Encinitas attempt to impose environmental or permit regulations on NCTD to be tantamount to economic regulation of a rail carrier. The court held that ICCTA preempts such economic regulation of rail carriers by state and local governments and vests jurisdiction over such matters exclusively with the STB. In its decision served August 21, 2002, the STB agreed with the federal court and determined that any requirement by the City under California state law that NCTD obtain a permit or other prior approval in order to build the passing track is preempted by section 10501(b). The STB confirmed that NCTD was a rail carrier subject to its jurisdiction and found that NCTDs commuter rail activities did not affect NCTDs rights and obligations under ICCTA as the owner and operator of an interstate rail line. In addition, the STB found that because of the anticipated benefit to BNSFs common carrier interstate rail freight operations [from the construction of the passing track], there is no doubt that we have jurisdiction and that this case falls within section 10501(b). Relying on considerable STB precedent involving freight rail carriers, the STB found that state and local permitting or similar pre-approval requirements are preempted because they could prevent NCTD from constructing a facility that would benefit both passenger rail operations and freight rail operations subject to exclusive STB jurisdiction.3 The STBs decision in North San Diego County Transit Development BoardPetition for Declaratory Order is significant in several respects. First, it represents the first time that the STB has extended the scope of ICCTA preemption to a transit agency. Second, it confirms that transit agencies involved in joint freight-passenger rail projects subject to state law permitting or similar preapproval requirements should consider the potential applicability of ICCTA preemption. Although based on a specific set of facts, the STBs decision strongly suggests that a non-carrier transit agency may be entitled to benefit from ICCTA preemption in situations where proposed improvements or other activities might benefit interstate freight rail operations. EDWARD J. FISHMAN FOR FURTHER INFORMATION, please consult one of the lawyers listed below: Boston Harrisburg Pittsburgh Jeffrey S. King Carleton O. Strouss Theodore A. McConnell Stephen M. Olson San Francisco Robert J. Sherry Washington Edward J. Fishman Kevin M. Sheys 617.261.3179 717.231.4503 412.355.6566 412.355.6496 415.249.1032 202.778.9456 202.778.9290 jking@kl.com cstrouss@kl.com tmcconnell@kl.com solson@kl.com rsherry@kl.com efishman@kl.com ksheys@kl.com In a decision served September 17, 2002, the STB denied the Respondents petition to stay the effectiveness of the STBs August 21 decision pending judicial review. The Respondents have appealed the STBs August 21 decision to the D.C. Circuit and have appealed the federal courts January 14 decision to the Ninth Circuit. These appeals remain pending. 3 ® Kirkpatrick & Lockhart LLP ® Challenge us. www.kl.com BOSTON n DALLAS n HARRISBURG n LOS ANGELES n MIAMI n NEWARK n NEW YORK n PITTSBURGH n SAN FRANCISCO n WASHINGTON ............................................................................................................................................................ This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. © 2002 KIRKPATRICK & LOCKHART LLP. ALL RIGHTS RESERVED.