CEQA Review of Projects on State-Owned Rail Lines is Not Preempted by Federal Law

In 1995, Congress enacted the Interstate Commerce Commission Termination Act (“ICCTA”), which provided the federal Surface Transportation Board with “exclusive” regulatory jurisdiction over rail operations in the United States.  That law has created uncertainty about whether California can require environmental review of rail projects under the California Environmental Quality Act (“CEQA”).  In Friends of Eel River v. North Coast Railroad Authority, the California Supreme Court has ruled that ICCTA, although broadly preemptive of state regulation of rail transportation, does not bar CEQA review of an approval by a state agency when it acts as the “owner” of a rail line.

Friends of Eel River concerns a project to resume freight operations on an intrastate rail line that runs north from Lombard, in Napa County, to Arcata, in Humboldt County.  Historically, the line had been owned and operated by private companies that eventually went out of business.  In 1989, the Legislature created the North Coast Rail Authority (“NCRA”), a state agency with authority to acquire the line and operate a railroad on it.  In 2006, NCRA contracted with Northwestern Pacific Railroad Company (“NWPCo”) to actually operate transportation services on the line.  In 2011, after completing an Environmental Impact Report (“EIR”), NCRA approved a project for resumption in freight service by NWPCo on the southern portion of the line, from Lombard to Windsor, in Sonoma County.  After several petitioners brought a lawsuit under CEQA, the NCRA issued a resolution to clarify that its previous project approval had not been subject to CEQA, and that its EIR was not legally required.  NCRA’s and NWPCo’s motion to dismiss the CEQA case was granted, and the court of appeal upheld the dismissal.

The Supreme Court reversed.  The Court began by recognizing the broad scope of federal preemption under ICCTA.  It held that state regulation, including a requirement for environmental review, is “categorically preempted” by ICCTA, to the extent it might have the effect of preventing a privately owned railroad from operating.  Nevertheless, the Court held that this principle alone did not resolve the case before it.

The Court held that Congress, in passing ICCTA, did not intrude upon California’s right to control its own subdivisions.  Accordingly, the Court held, state-mandated procedures for agency approval of projects on state-owned rail lines may not constitute preempted regulation.  Rather, such requirements may be a form of “self-governance” that is not preempted.  The Court drew an analogy to the freedom that private rail companies enjoy, under ICCTA, to establish their own internal procedures (including, at least potentially, environmental review) when they consider rail projects.  Under this theory, the Court ruled that the State’s requirement for NCRA to comply with CEQA for a project it approves on the rail line it owns was not preempted by ICCTA.  The Court further held that the right of petitioners to bring suit to compel NCRA to comply with CEQA was also not preempted.

The Court remanded the case for further proceedings on the petitioners’ CEQA suit.  However, the Court also clarified that the lower court could not issue any order “directed specifically at NWPCo to halt NWPCo’s freight operations.”  Such an order, the Court held, “would constitute the use of state law to restrict operations by a private rail carrier – a classic example of state regulation” that is barred by ICCTA.

Friends of Eel River provides much-needed guidance on questions of federal preemption of state environmental requirements for rail projects.  Nevertheless, the decision leaves unanswered many questions about the extent to which state involvement in rail operations can exempt CEQA review from the broad federal preemption of state regulation of rail operations.