The Surface Transportation Board (“STB”) issued a declaratory order in a 2-1 vote last Friday, finding that the  California Environmental Quality Act (“CEQA”) is categorically preempted by federal law, as it relates to the Fresno to Bakersfield segment of the California High-Speed Rail Project (“HSR Project”).

Section 10501(b) of Title 49 of the United States Code provides that remedies with respect to rail transportation are exclusive and preempt remedies provided under State or Federal law.  The STB has previously ruled that states or localities are precluded from intruding into matters directly regulated by the STB, in particular when the state or local action would have the effect of foreclosing or unduly restricting the rail carrier’s ability to conduct its operations or otherwise unreasonably burden interstate commerce.

Under this section, the STB could not overlook the fact that CEQA, as a state pre-clearance requirement, could ultimately deny or significantly delay the High-Speed Rail Authority’s (the “Authority”) right to construct a railroad line.  This would directly defy the STB’s exclusive jurisdiction over a project that it regulates.  Even if it could be argued that the Authority created an implied agreement by voluntarily beginning the CEQA process, the STB concluded that any such agreement would unreasonably interfere with interstate commerce because it would prevent the Authority from exercising its authority to construct the rail line, which it had been previously authorized to do by the STB.

As to the public’s concern with any aspect of the Authority’s environmental analysis, the STB noted that the National Environmental Policy Act would still apply to rail construction and the STB could require environmental mitigation conditions if any concerns were raised.

Opponents of the declaratory order had cited to Town of Atherton v. California High Speed Rail Authority (2014) 228 Cal.App.4th 314, where the Court of Appeal held that CEQA was not preempted as to the HSR Project under the market participant doctrine.  According to the state appellate court, the market participant doctrine negated federal preemption because CEQA compliance was proprietary in nature and the Authority was not acting as a regulator.  However, the STB disagreed with the Court of Appeal’s application of the market participation doctrine and held that a private citizen’s group challenge to the adequacy of the environmental review under CEQA is not part of the state agency’s proprietary action, even if it challenges the proprietary action itself.  While the Town of Atherton court concluded that the condition under Proposition 1A requiring compliance with CEQA, demonstrated the Authority was a market participant, the STB left the interpretation of Proposition 1A to state law and the courts.   Nevertheless, despite the funding measure approved by the state’s electorate, the STB concluded that section 10501(b) preempts third party attempts to enforce CEQA against the Project.

The STB’s declaratory order effectively only applies to the Fresno to Bakersfield section of the HSR Project, but it undoubtedly will have the effect of applying to each of the other eight segments of the HSR Project.  Future developments will be closely monitored.