Controversy has dogged the California high speed rail project since before its inception with the 2008 passage of Proposition 1A, the bond measure providing the project’s initial funding. The controversy has not abated in the years since, and the project has been subject to ever-escalating cost estimates and almost constant second-guessing. It has also been the target for multiple CEQA lawsuits. Recent developments in this area demonstrate just how complex the legal landscape can get when it comes to CEQA’s application to large and long-term public railway projects. Two very different bodies – the California Supreme Court and the federal Surface Transportation Board (STB) – have just waded into this legal thicket to try to provide some clarity. But things could get worse before they get better in that regard, as the stage is set for potentially conflicting rulings on the application of federal preemption law to CEQA.

The first of the two recent developments concerns the state courts’ treatment of CEQA in the railroad project context. In September, the First District Court of Appeal issued an opinion in Friends of the Eel River v. North Coast Railroad Authority (2014) 230 Cal.App.4th 85, which held that CEQA does not apply to railroad operations because the statute is preempted by federal law (the Interstate Commerce Commission Termination Act or “ICCTA,” 49 U.S.C. § 10101 et seq.) and the jurisdiction of the STB. In reaching this decision, the First District disagreed with a recent decision by the Third District, Town of Atherton v. California High-Speed Rail Authority (2014) 228 Cal.App.4th 314. The Town of Atherton opinion also analyzed federal preemption of CEQA in the context of railroad operations (there, the California high speed rail project), but concluded that the “market participation doctrine” applied to overcome preemption and that CEQA would thus apply in the case before it. (For prior posts on these two cases, see “First District Holds CEQA’s Application To Public Agency’s Approval Of Railroad Operations Is Preempted By Federal Law Despite Agency’s Agreement To Conduct CEQA Review And Preparation of EIR” by Arthur F. Coon, posted 10/6/14; “Of High Speed Rails And Litigation Snails:  The Train Rolls On As Third District Rejects Additional CEQA Challenges To High-Speed Rail Authority’s Revised Final Program EIR Analyzing Central Valley To San Francisco Bay Area Track Route,” by Arthur F. Coon, posted 8/4/14.)

The tension between Friends of the Eel River and Town of Atherton caught the attention of the California Supreme Court, which granted appellant’s petition for review of the First District’s opinion on December 10, 2014. The grant of review reads in part:

…. This case includes the following issues: (1) Does the Interstate Commerce Commission Termination Act [ICCTA] (49 U.S.C. § 10101 et seq.) preempt the application of the California Environmental Quality Act [CEQA] (Pub. Res. Code, § 21050 et seq.) to a state agency’s proprietary acts with respect to a state-owned and funded rail line or is CEQA not preempted in such circumstances under the market participant doctrine [citing Town of Atherton]?; (2) Does the ICCTA preempt a state agency’s voluntary commitments to comply with CEQA as a condition of receiving state funds for a state-owned rail line and/or leasing state-owned property?

Just two days after the California Supreme Court granted review in Friends of the Eel River, the STB itself issued a declaratory order to the effect that federal preemption applies to the high speed rail project and that it is therefore not subject to injunctive relief under CEQA. The decision is available for review here. On October 9, 2014, the California High-Speed Rail Authority had filed a petition (docket no. FD 35861) requesting that the STB order the next phase of the high speed rail project (a 114-mile line between Fresno and Bakersfield) immune from injunctive remedies under CEQA. (The Authority was prompted to do this by seven CEQA lawsuits filed against the Fresno-Bakersfield line.) Because the Authority had already completed CEQA review, the issue before the STB was not whether CEQA was preempted generally, but only whether an injunction could issue under the statute to halt or delay the line’s construction. Ultimately, however, the STB’s ruling reached more than the injunction issue, as it found no basis to disentangle CEQA’s provisions for injunctive relief from its general application. As the STB noted, a court would have no real means of enforcing CEQA if it could not prohibit a project subject to its requirements from moving forward.

The STB’s 2-1 decision in favor of preemption made the following key points:

• The Authority did not waive its right to make preemption arguments as it “has consistently explained in its environmental documentation that it reserves the right to assert federal preemption” since the STB first asserted jurisdiction over the project. Moreover, the issue of CEQA preemption was not squarely presented by prior proceedings of the STB.
• The Authority’s petition was not barred by collateral estoppel or res judicata by the Town of Atherton decision because of the conflict with the Friends of the Eel River  opinion and the fact that the STB is “uniquely qualified” to address preemption issues.
• Preemption under 49 U.S.C. § 10501(b) does apply to the high speed rail project. The statute “prevents states and localities from imposing requirements that, by their nature, could be used to deny a rail carrier’s ability to conduct rail operations. Thus, state or local permitting or preclearance requirements, including environmental permitting or preclearance requirements, are categorically preempted as to any rail lines and facilities that are an integral part of rail transportation.” The STB had no difficulty holding that CEQA constituted such a “permitting or preclearance” statute and was therefore expressly preempted under § 10501(b). The STB also noted that the project is subject to environmental review under the federal National Environmental Protection Act (42 U.S.C. § 4321 et seq.).
• The Authority had not impliedly agreed to abide by CEQA by voluntarily undertaking environmental review of the project. As soon as the STB asserted jurisdiction over the line, the Authority consistently asserted its right to rely on the preemption doctrine. Moreover, the STB held that “any such agreement unreasonably interferes with interstate commerce and is not enforceable under § 10501(b).”
• The STB reviewed the reasoning of the Town of Atherton opinion and disagreed with its conclusions, essentially adopting the reasoning set forth in Friends of the Eel River. The STB reaffirmed its holding that CEQA is a state permitting or preclearance requirement, and ruled that the “market participation” doctrine (which holds that “proprietary” state action as a marketplace participant and not as a regulator is not subject to preemption) does not apply here because CEQA lawsuits are not proprietary in nature but part of a regulatory scheme.
• Similarly, the STB concluded that federal preemption in this field did not impinge on California’s state sovereignty because the actions at issue (suing the Authority under CEQA) were not brought by the state itself.
• Finally, the STB refused to opine on whether CEQA compliance is required to fund the high speed rail project under Proposition 1A, as that is a question of state law for California’s courts to decide.

The STB’s decision was not unanimous; one commissioner filed a dissent arguing that the Authority and STB had previously acted as if CEQA applied to the project, and that the STB should therefore exercise its discretion to decline issuing a declaratory order.

The recent actions of the California Supreme Court and STB raise a number of interesting issues. The question of federal preemption of CEQA’s application to state rail projects under the ICCTA is not as clear a question as it might at first appear, as demonstrated by the conflict between Friends of the Eel River and Town of Atherton and the opinion of the STB’s dissenting commissioner. One question that now looms large is: what happens if the California Supreme Court reaches a different decision than the STB? Further litigation in federal court would almost certainly ensue, throwing even more doubt – and possibly delay – into the implementation of the high speed rail project.