Opinion ID: 3026300
Heading Depth: 3
Heading Rank: 2

Heading: Whether the Transloading Activities Are

Text: Undertaken “by a Rail Carrier” The State argues that Susquehanna is not acting as a “rail carrier” when it ships waste from the transloading facilities for two reasons: (1) Susquehanna does not operate the transloading facilities itself, and (2) it grants virtually all of its hauling capacity at each facility to one shipper.
Transloading Process Our Hi Tech decision dealt with whether transloading activities were performed “by a rail carrier.” Hi Tech Trans, LLC v. N.J., 382 F.3d 295, 308–10 (3d Cir. 2004). In that case, we noted that Hi Tech, the transloader, operated the transloading facility under a license agreement with CPR, the rail carrier and owner of the land. Id. at 308. Hi Tech constructed and maintained the facility. Id. Moreover, the license agreement established that Hi Tech was not CPR’s agent, and CPR disclaimed any liability from Hi Tech’s operations. Id. CPR did not charge shippers a fee for using the Hi Tech transloading 28 facility (presumably, the shippers paid Hi Tech for the service). Id. This case is different because (1) the rail carrier owned (or leased) the land and built the transloading facilities, (2) shippers pay the rail carrier to load their freight, and (3) the rail carrier does not disclaim liability for the loading process. The Board noted that the Hi Tech situation was “substantially different from a situation in which a rail carrier builds and owns a truck-to-rail transloading facility, and holds it out to the public as its own facility, but chooses to have a contract operator,” which, presumably, would qualify as transportation by rail carrier. Hi Tech Trans, LLC (Hi Tech STB), 2003 WL 21952136, at  n.13 (denying request for a declaratory order). Relying on this language, the District Court concluded that our case is just what the Board describes: a rail carrier (Susquehanna) building, owning, and advertising its own transloading facilities, which it uses a contract agent to operate. While the District Court’s conclusion that this case is distinguishable from Hi Tech is correct, a footnote from our Hi Tech decision complicates the issue. We wrote that “[w]e do not . . . suggest that a party can contractually determine its status as a railroad carrier for regulatory purposes.” 382 F.3d at 308 n.19. This is a perplexing statement because the contract before us obviously plays some role in determining the “nature of [the loader’s] . . . relationship to [the railroad].” Id. That is, after all, why it exists—to define the parties’ relationship. Our point in 29 Hi Tech, though, was that railroads and loaders may not change by contract what in practice is a substantively different relationship. Here, Susquehanna contracts with shippers to load their waste, which it then pays a loading agent to do on its behalf. In Hi Tech, the loader contracted with shippers directly. The State argues that this is a distinction without a material difference, as Susquehanna essentially just funneled money from shipper to loader (often the exact same amount). The difference, however, is that Susquehanna, by contracting directly with the shipper, assumed more liability than the Hi Tech rail carrier. Susquehanna could be sued for breach of contract (or potentially negligence or some other tort) if something went wrong; the Hi Tech railroad could not, as it was not a party to the shippers’ and loaders’ agreements. We regard this as a substantive difference between the Hi Tech case and this one, and therefore conclude that the District Court appropriately distinguished it.
Contracts The State also argues that Susquehanna does not qualify as a rail carrier when it hauls freight from the transloading facilities because it does not act as a common carrier (though the State concedes that Susquehanna does so in other contexts). This is relevant because only common carriers fit the Termination Act’s definition of “rail carrier.” 49 U.S.C. 30 § 10102(5). The statute does not further define the term “common carrier,” but the general definition is “[a] carrier that is required by law to transport passengers or freight, without refusal, if the approved fare or charge is paid.” B LACK’S L AW D ICTIONARY 205 (7th ed. 1999). The core of the State’s argument is that, because Susquehanna sells in advance all (the contaminated-soil facility) or nearly all (the C&D facilities) of its capacity to one shipper, it offers nothing to the general public, as the definition of “common carrier” requires. The common law differentiates between “private carriers” and “common carriers.” See, e.g., York Co. v. Cent. R.R., 70 U.S. 107, 112 (1865) (holding that common carriers may limit their liability by undertaking private carriage). We have held that [t]he distinctive characteristic of a common carrier is that he undertakes to carry for all people indifferently, and hence is regarded in some respects as a public servant. The dominant and controlling factor in determining the status of one as a common carrier is his public profession as to the service offered or performed. Kelly v. Gen. Elec. Co., 110 F. Supp. 4, 6 (E.D. Pa.), aff’d and adopted as circuit precedent, 204 F.2d 692, 692 (3d Cir. 1953). A private carrier, on the other hand, offers services to limited customers under limited circumstances and assumes no 31 obligation to serve the public at large. Lone Star Steel Co. v. McGee, 380 F.2d 640, 645 (5th Cir. 1967) (citing Ward Transp., Inc. v. Pub. Untils. Comm’n, 376 P.2d 166, 169 (Colo. 1962)). Susquehanna was certified by the Interstate Commerce Commission as a common carrier decades ago, and that certification is current. But, as then-Circuit Judge Warren Burger noted, “a common carrier may in some circumstances operate as a private carrier.” Overseas Nat’l Airways, Inc. v. Civil Aeronautics Bd., 307 F.2d 634, 636 (D.C. Cir. 1962); see also York Co., 70 U.S. at 112. Even so, “a claim of such private carriage must show that the private activity is distinguishable from the public or common transportation business regularly carried on. The claimed private carriage must be viewed in relation to and against the background of the entire carrying activity.” Overseas Nat’l Airways, 307 F.2d at 636. Here, though the record on this issue is scant, a Susquehanna officer testified that it publishes its charges for hauling waste, App. at Aa1216, which indicates that it holds itself out to the public as available to transport waste. Cf. 49 U.S.C. § 11101(b) (requiring that common carriers provide their rates upon request). Moreover, as Susquehanna points out, there is nothing in the record (and no apparent allegation) that it has ever turned away a potential waste customer. Thus, if we follow the D.C. Circuit Court of Appeals’s command to view Susquehanna’s waste-hauling operation “against the background of the entire carrying activity,” it appears merely part of its 32 overall common-carriage operation. Overseas Nat’l Airways, 307 F.2d at 636. Susquehanna holds itself out as willing to haul waste for a reasonable and publicly available rate; it does, in fact, haul waste for multiple customers; and there is no evidence of it turning away a customer. Moreover, Susquehanna’s expert testified (credited by the District Court) that the waste-hauling industry lends itself to arrangements in which a middleman “shipper” consolidates demand so as to generate multiple carloads that can be transported to a landfill as a group. This saves the cost of car-switching down the line. Allowing multiple shippers to load at a single transload facility would be difficult because their waste would have to be stored separately (as they presumably would not have contracts with the same landfills), requiring more space than many facilities can easily muster given the narrowness of railroad rights-of-way. Thus the norm is for railroads to build large customers their own dedicated facilities at different points on the same rail line (and to leave some capacity open for smaller shippers). In the context of shipping bulk waste, we believe the concept of “common carrier” must be flexible enough to accommodate reasonable commercial practice. Indeed, in its decisions the Board merely defines the term “common carrier” as “a person or entity that holds itself out to the general public as engaged in the business of transporting persons or property from place to place for compensation.” Am. Orient Express Ry. Co., 2005 WL 3552968, at  (S.T.B. Dec. 27, 2005) (declaratory order). “In determining whether there has been a 33 holding out, ‘one must look to the character of the service of the party in relation to the public.’” Id. (quoting Penn. R.R. Co., 347 I.C.C. 536, 549 (I.C.C. 1974)). On this record it appears that Susquehanna holds itself out to the public as providing waste transport services in the manner common in the industry. This, we believe, is sufficient to affirm the District Court’s determination that Susquehanna acts as a common carrier. III. Whether the 2D Regulations Fall Within the Scope of Federal Preemption A. The Scope of the Termination Act Preemption Clause Having established that Susquehanna’s storage and transloading activities qualify as “transportation by a rail carrier” under the Termination Act, the next question is whether the Act preempts the State’s attempt to regulate the environmental effects of these activities. The Termination Act states that “the remedies provided under this part with respect to the regulation of rail transportation are exclusive and preempt the remedies provided under Federal and State law.” 49 U.S.C. § 10501(b) (internal paragraph divisions omitted). Keeping in mind that a federal law does not preempt state laws “where the activity regulated [by the state is] merely a peripheral concern” of the federal law, San Diego Bldg. Trades Council, Millmen’s Union, Local 2020 v. Garmon, 239 U.S. 236, 243 (1959), we must look to the Termination Act’s “remedies . . . with respect 34 to the regulation of rail transportation,” 49 U.S.C. § 10501(b), to determine its core concerns. The Termination Act regulates, inter alia, rail carriers’ rates, terms of service, accounting practices, ability to merge with one another, and authority to acquire and construct rail lines. See generally 49 U.S.C. §§ 10101–11908. Thus it regulates the economics and finances of the rail carriage industry—and provides a panoply of remedies when rail carriers break the rules. See 49 U.S.C. §§ 11701–11707. Because the Act’s subject matter is limited to deregulation of the railroad industry, Fla. E. Coast Ry. Co. v. City of W. Palm Beach, 266 F.3d 1324, 1337 (11th Cir. 2001), courts and the Board have rightly held that it does not preempt all state regulation affecting transportation by rail carrier. See Green Mountain 2d Cir., 404 F.3d at 643; J.P Rail, Inc. v. N.J. Pinelands Comm’n, 404 F. Supp. 2d 636, 652 n.31 (D.N.J. 2005); Vill. of Ridgefield Park v. N.Y., Susquehanna & W. Ry. Corp., 750 A.2d 57, 63 (N.J. 2000); Riverdale, 1999 WL 715272, at  (“[S]tate or local regulation is permissible where it does not interfere with interstate rail operations . . . .”). Contrary to New Jersey and the amici’s argument, the Termination Act does not preempt only explicit economic regulation. Rather, it preempts all “state laws that may reasonably be said to have the effect of managing or governing rail transportation, while permitting the continued application of laws having a more remote or incidental effect on rail transportation.” Fla. E. Coast. Ry. Co., 266 F.3d at 1331 35 (internal quotation marks, citations, and alterations omitted). What matters is the degree to which the challenged regulation burdens rail transportation, not whether it is styled as “economic” or “environmental.” Soon after Congress enacted the Termination Act, the newly created Surface Transportation Board ruled that, while broad, the Act’s preemption clause “does not usurp the right of state and local entities to impose appropriate public health and safety regulation on interstate railroads,” so long as those regulations do not interfere with or unreasonably burden railroading. King County, 1996 WL 545598, at –4. In Cities of Auburn & Kent, WA, 2 S.T.B. 330, 1997 WL 362017, at  (1997) (declaratory order), the Board expounded further: [T]here are areas with respect to railroad activity that are reasonably within the local authorities’ jurisdiction under the Constitution. For example, even in cases where we approve a construction or abandonment project, a local law prohibiting the railroad from dumping excavated earth into local waterways would appear to be a reasonable exercise of local police power. Similarly, as noted by the Secretary [of Transportation], a state or local government could issue citations or seek damages if harmful substances were discharged during a railroad construction or upgrading project. A railroad that 36 violated a local ordinance involving the dumping of waste could be fined or penalized for dumping by the state or local entity. The railroad also could be required to bear the cost of disposing of the waste from the construction in a way that did not harm the health or well being of the local community. We know of no court or agency ruling that such a requirement would constitute an unreasonable burden on, or interfere with, interstate commerce. Therefore, such requirements are not preempted. .... [W]here the local permitting process could be used to frustrate or defeat an activity that is regulated at the Federal level, the state or local process is preempted. For the Board, the touchstone is whether the state regulation imposes an unreasonable burden on railroading. Id. at . In subsequent cases, the Board has explained that uniform building, plumbing, and electrical codes generally are not preempted because they do not unreasonably interfere with railroad operations. Riverdale, 1999 WL 715272, at . On the other hand, some local zoning ordinances, local land-use regulations, and environmental permitting requirements are 37 preempted because they unreasonably prevent, delay, or interfere with activities protected by the Act. Id. at –6. The Board has emphasized, however, that even pedestrian regulations like building codes must be applied in a manner that does not discriminate against railroad operations to avoid preemption. Green Mountain R.R., 2002 WL 1058001, at  (S.T.B. 2002) (denial of request for a declaratory order). Thus, according to the Board, state regulation is permissible if it passes a two-part test: (1) it is not unreasonably burdensome, and (2) it does not discriminate against railroads. See Maumee & W. Ry. Corp., 2004 WL 395835, at  (S.T.B. 2004) (denying request for declaratory order). This is a factintensive inquiry. For example, the Board has ruled that a state may take easements over rail lines when the facts show that doing so will not significantly interfere with the railroad’s ability to conduct business. See id. On the other hand, the Board has held that even compelling state concerns like preventing terrorism will not save a local regulation that imposes too heavy a burden. See CSX Transp., Inc., 2005 WL 584026, at  (S.T.B. 2005) (declaratory order) (ruling that a D.C. law that prohibited transporting hazardous material within 2.2 miles of the U.S. Capitol without a permit was preempted). The Court of Appeals for the Second Circuit has endorsed the Board’s approach. In Green Mountain 2d Cir., it stated that while pre-construction permitting programs often unreasonably interfere with rail travel, less burdensome and 38 non-discriminatory regulations would pass muster. It explained further: It therefore appears that states and towns may exercise traditional police powers over the development of railroad property, at least to the extent that the regulations protect public health and safety, are settled and defined, can be obeyed with reasonable certainty, entail no extended or open-ended delays, and can be approved (or rejected) without the exercise of discretion on subjective questions. Electrical, plumbing and fire codes, direct environmental regulations enacted for the protection of the public health and safety, and other generally applicable, non- d isc rim inatory regulation s a n d p e rm it requirements w ould seem to withstand preemption. 404 F.3d at 643. We believe that the approach of the Board and the Second Circuit Court is sound. In particular, we agree that a state law that affects rail carriage survives preemption if it does not discriminate against rail carriage and does not unreasonably burden rail carriage. The nondiscriminatory prong is particularly useful in determining whether a state is regulating principally to discriminate against a specific industry. Much of 39 the Board’s logic in finding that standard building, fire, and electrical codes are not preempted is that, while the costs of compliance may be high in some sense, they are “incidental” when they are subordinate outlays that all firms build into the cost of doing business. See Riverdale, 1999 WL 715272, at . Thus, for a state regulation to pass muster, it must address state concerns generally, without targeting the railroad industry. As for the unreasonably burdensome prong, the most obvious component is that the substance of the regulation must not be so draconian that it prevents the railroad from carrying out its business in a sensible fashion. In addition, as the Green Mountain Court held, regulations must be settled and definite enough to avoid open-ended delays. See 404 F.3d at 643.8 The animating idea is that, while states may set health, safety, and environmental ground rules, those rules must be clear enough that the rail carrier can follow them and that the state cannot easily use them as a pretext for interfering with or curtailing rail service. On this point, the Board’s decision in Cities of Auburn & Kent is illustrative. See 1997 WL 362017, at . In that case, the Board found it relevant that the cities’ real goal in creating an environmental permitting process was to constrain 8 The Green Mountain Court held that only regulations that do not involve “the exercise of discretion on subjective questions” are permissible. 404 F.3d at 643. We believe this statement, taken alone, goes too far because, as we explain infra, some discretion is inherent in even the clearest regulatory schemes. 40 (rather than render safe) a railroad’s operations. Id. It noted that one of the problems with the permitting process was that it gave the cities too much room to give effect to their antirailroading policy in the guise of non-discriminatory environmental regulation. Id. We do not hold that local regulations may not give state and local officials any discretion at all, for that would be impractical. Standard building, electrical, and fire codes no doubt give local officials some discretion. See, e.g., Int’l Fire Code § 304.2 (2000) (“Storage of combustible rubbish shall not produce conditions that will create a nuisance or a hazard to the public health, safety, or welfare.”); id. §§ 401.2 & 404 (giving local code official discretion to determine if fire safety plan is adequate). But such regulations may not (1) be so open-ended as to all but ensure delay and disagreement, or (2) actually be used unreasonably to delay or interfere with rail carriage. In other words, some regulations, like those at issue in the Green Mountain litigation, give too much discretion to survive a facial challenge because they invite delay.9 In addition, even a regulation that is definite on its face may be challenged asapplied if unreasonably enforced or used as a pretext to carry out a policy of delay or interference. 9 In Green Mountain, the permitting scheme at issue was so open-ended that it allowed the State to impose site-specific, burdensome regulations as conditions for permit approval. This process gave the State too much room to delay and burden rail travel. See 404 F.3d at 643. 41 B. Application to Susquehanna’s Activities Against this backdrop, the District Court found six problems with the 2D regulations. First, it noted that potential fines of up to $50,000 per day per violation were excessive to the point of threatening Susquehanna with immediate shutdown. While this may be true, there appears to be little in the record demonstrating the (un)reasonableness of this amount (and the Court cites nothing). Nothing prevents a state from imposing a significant fine on months of noncompliance with valid regulations, Cities of Auburn & Kent, 1997 WL 362017, at , and so one would expect some evidence to support the Court’s factual finding. Moreover, the fine in this case is only $2,000 per day; nothing in the record indicates that it is unreasonable. Second, the Court stated that the provisions dictating the design, construction, and operation of the facilities made immediate compliance nearly impossible. In effect, they operated much like a permit system. This logic is sound: if a state imposes new regulations on existing rail facilities without giving reasonable time for them to come into compliance, then it would cause a delay (likely unwarranted) in the provision of rail service. Again, however, the District Court did not connect its finding to anything in the record showing that the State’s demands were unreasonable or were imposed without sufficient notice. Third and fourth, the Court found that the regulations 42 gave the State too much discretion and invited open-ended delays. It noted that provisions authorize the State to penalize [Susquehanna] if the company does not maintain “[e]ffective security procedures . . . to control entry and exit at all times,” and “adequate water supply and adequate fire-fighting equipment”; or if waste containers are not “secured at all times in a manner that prevents unauthorized access”; or if dust migrates outside the facilities; or if the staging of waste vehicles causes “traffic backups and related traffic hazards” on public roadways. N .J.A .C . 7:26 -2D .1(c)(2)(iv), (c )(2)(v), (c)(2)(vii), (d)(7), (d)(9), (d)(22) (emphases added). App. at Aa 46. We agree that many of the 2D regulations appear to grant significant discretion. The State protests that many of the regulations are written to give the rail carrier flexibility in determining how to comply, rather that set strict standards. The problem comes when the goal to be achieved is so subjective that the compliance process is open to unreasonable delay. In making this determination, it is important for a court to hone in on how wide the range of 43 discretion really is.10 We leave to the District Court on remand the task of determining whether a particular regulation is too subjective. Fifth, the Court took issue with the State’s power to enter and inspect rail facilities at any time to ensure compliance. Perhaps this power is open to abuse (and thus might give rise to an as-applied challenge). See Riverdale, 1999 WL 715272, at . But, given the State’s interest in effectively enforcing its regulatory scheme, such a rule is not per se unreasonable, and the District Court did not find facts to suggest that it is in the context of this case. Sixth, the Court noted that the 2D regulations are discriminatory because by their terms they apply only to rail carriers. The State counters that they are similar in kind to regulations that apply to other solid waste facilities. See, e.g., N.J.A.C. § 7:26-2.11 (general operational requirements for solid waste facilities); N.J.A.C. § 7:26-2B.5 (additional design requirements for transfer stations and materials recovery facilities); N.J.A.C. § 7:26-2B.9 (additional operational requirements for transfer stations and materials recovery facilities). At first glance, the regulations do appear to be similar, but it is difficult to assess how similar they are without 10 For example, it is possible that a standard like “adequate fire protection” has a common enough meaning in the relevant industry that the range of discretion is actually narrow and compliance is straightforward. 44 knowing more about the industry. It appears, however, that the 2D regulations are, if anything, more relaxed than those that apply to other solid waste facilities—probably because the State was trying to steer clear of a preemption problem. Indeed, permitting requirements abound for other solid waste facilities. See, e.g., N.J.A.C. § 7:26-3.6 (specifying permitting requirements for non-rail solid waste transfer facilities). As those are not allowed in this context, it would be impossible for the State to regulate rail facilities in the same way. Thus, evaluating the nondiscriminatory prong requires comparing the substance of the solid waste regulations that apply to railroads with those that apply to similar industries that deal in solid waste to determine if the State is discriminating against rail carriage. As the record before us does not show that was done, we cannot determine whether the 2D regulations are impermissibly discriminatory at this point. The core concern for us is that the District Court did not make its findings regulation-by-regulation; rather, it found that all were preempted. This determination is, we believe, too broad. At least some of the regulations seem sufficiently certain and identical to those applied to non-rail facilities. For example, one of the regulations requires that all storage activities occur “within the confines of an enclosed building that complies with all the requirements of the Uniform Construction Code.” N.J.A.C. § 7:26-2D.1(d)(1). Under Riverdale and Green Mountain 2d Cir., this seems reasonable, certain, and 45 nondiscriminatory.11 We, however, are not in a good position to analyze each individual regulation because neither the briefing, the District Court’s decision, nor the appellate record is sufficiently detailed. Thus we remand for the District Court to make a determination of preemption for each regulation in the first instance. It may turn out that most of the regulations are preempted, but it would be premature to invalidate those (like the construction-code requirement) that might survive on a more developed record. At oral argument, Susquehanna objected to this sort of remand by arguing that the State did not ask the District Court to examine the regulations individually. That is irrelevant. Susquehanna approached the District Court as a declaratoryjudgment plaintiff asking the Court to strike down all of the 2D regulations. New Jersey answered, asking the Court to uphold all of them. The Court sided with Susquehanna. Nothing prevents us, in our de novo review of the District Court’s application of law to facts, see VFB LLC v. Campbell Soup Co., 482 F.3d 624, 632 (3d Cir. 2007), from recognizing that the law in this area admits of more nuance than any of the parties (or the amici) argued and fashioning our remand accordingly. Nor does 11 We do not hold that this regulation is permissible, as we leave that question for the District Court to resolve on remand. We merely point it out as an example of a regulation that appears permissible on its face. On remand, the District Court is free to conclude otherwise with the benefit of a full factual record. 46 anything prevent us from concluding that the District Court’s factfinding does not appear to support the breadth of the injunction it entered, and thus remanding for a more detailed inquiry.