In Friends of Eel River v. North Coast Railroad Authority, 2014 Cal. App. LEXIS 877, the California Court of Appeal for the First District affirmed the trial court’s determination that federal law preempts the North Coast Railroad Authority’s (North Coast) obligation to comply with the California Environmental Quality Act (CEQA) in repairing and operating a segment of rail tracks in Northern California.
The California Legislature established North Coast to maintain rail service on the Northwestern Pacific Railroad line between Humboldt and Napa counties. After several years of closure and limited operations due to safety and maintenance issues, North Coast sought to reopen the portion of the line between Mendocino and Napa counties. North Coast entered into an agreement with Caltrans for funding to repair the line. The agreement required North Coast to comply with CEQA as a prerequisite to obtaining funds. After a comprehensive environmental review, North Coast approved a resolution certifying an EIR and adopting a statement of overriding considerations in reopening the line.
Petitioners challenged the certification of the EIR, and North Coast subsequently passed a second resolution rescinding that certification. The subsequent resolution stated North Coast had mistakenly believed it had to comply with CEQA, but had later determined it was not required to comply with CEQA because the Interstate Commerce Commission Termination Act (ICCTA) governed rail operations and preempted California’s environmental regulations.
The court found that ICCTA’s “broadly worded express preemption provision” preempted CEQA as applied to railroad operations. The court held the Surface Transportation Board had exclusive jurisdiction over rail operations in the United States, and any state or local statute requiring environmental review as a prerequisite to rail operations was unduly burdensome on interstate transportation.
North Coast’s previous agreement with Caltrans, in which it voluntarily agreed to prepare an EIR, did not alter the preemption analysis. If petitioners wished to enforce a clause in that agreement, petitioners needed to bring an action for breach of contract, which they did not. Additionally, the court noted that the contract language was ambiguous because the agreement to complete an EIR mandated by CEQA would be inapplicable where CEQA was preempted.
The court distinguished this case from the Third District’s recent decision in Town of Atherton v. California High Speed Rail Authority (2014) 228 Cal.App.4th 314. In Atherton, the court found that the market participation exception to preemption required the High Speed Rail Authority to complete an EIR as part of the process for determining where to place a line of track. In contrast, North Coast sought to upgrade an existing track. While the market participant exception normally allows a state to regulate when it is acting in the capacity of a private market participant, petitioners could not “stand the doctrine on its head” and use it to avoid preemption of a federal statute the state wishes to invoke. Even if the market participation doctrine were to apply, the court explained it only protects proprietary activities of the states, and a writ of mandate to comply with CEQA is not proprietary, but is a regulatory action. The court acknowledged the similar facts and different result from Atherton, but respectfully disagreed with that court’s analysis.
The court also rejected petitioner’s other challenges under the Tenth Amendment and judicial estoppel grounds.
While the court in Atherton applied the market participant exception to preemption defensively to compel a state agency to comply with CEQA, not all courts will apply the doctrine in such a manner. The ICCTA governs railroad operations in the United States, and statutes, such as CEQA, that unduly burden interstate transportation will be preempted by this federal law, even when the state agency otherwise agrees to comply with the state statute.