Filed 7/27/17




           IN THE SUPREME COURT OF CALIFORNIA

FRIENDS OF THE EEL RIVER,               )
                                        )
            Plaintiff and Appellant,    )                       S222472
     v.                                 )
                                        )                  Ct.App. 1/5 A139222
NORTH COAST RAILROAD                    )
   AUTHORITY et al.,                    )
                                        )                     Marin County
            Defendants and Respondents; )               Super. Ct. No. CV1103605
                                        )
NORTHWESTERN PACIFIC                    )
   RAILROAD COMPANY,                    )
                                        )
            Real Party in Interest      )
                       and Respondent.  )
_______________________________________)
                                        )
CALIFORNIANS FOR                        )
   ALTERNATIVES TO TOXICS,              )
                                        )
            Plaintiff and Appellant,    )
                                        )
     v.                                 )
                                        )                  Ct.App. 1/5 A139235
NORTH COAST RAILROAD                    )
   AUTHORITY et al.,                    )                     Marin County
                                        )               Super. Ct. No. CV1103591
            Defendants and Respondents; )
                                        )
NORTHWESTERN PACIFIC                    )
   RAILROAD COMPANY,                    )
                                        )
            Real Party in Interest      )
                       and Respondent.  )


        In this case we decide whether federal law, the ICC [Interstate Commerce
Commission] Termination Act of 1995 (Pub.L. No. 104-88 (Dec. 29, 1995) 109 Stat.


                SEE CONCURRING AND DISSENTING OPINIONS
803) (ICCTA; see 49 U.S.C. § 10101 et seq.), preempts application of the California
Environmental Quality Act (CEQA; Pub. Resources Code, § 21000 et seq.), to a railroad
project that has been undertaken by a state public entity, defendant North Coast Railroad
Authority (NCRA), along with lessee real party in interest, Northwestern Pacific Railroad
Company (NWPCo), a private entity.
       The Court of Appeal determined that ―CEQA is preempted by federal law when
the project to be approved involves railroad operations.‖ We conclude that the ICCTA is
not so broadly preemptive.
       True, the ICCTA contemplates a unified national system of railroad lines subject
to federal, and not state, regulation. Indeed, it appears settled that the ICCTA would
preempt state regulation in the form of the state‘s imposition of environmental
preclearance requirements on a privately owned railroad that prevented the railroad from
operating. But in this case we must explore the application of the ICCTA preemption
clause to the state‘s decisions with respect to its own subsidiary governmental entity in
connection with a railroad project owned by the state.
       When the project is owned by the state, the question arises whether an act of self-
governance on the part of the state actually constitutes regulation at all within the terms
of the ICCTA. Even though the ICCTA applies to state-owned rail lines, in the sense that
states as owners cannot violate provisions of the ICCTA or invade the regulatory
province of the federal regulatory agency, this is not the end of the question. In our view,
the application of state law to govern the functioning of subdivisions of the state does not
necessarily constitute regulation. To determine the reach of the federal law preempting
state regulation of a state-owned railroad we must consider a presumption that, in the
absence of unmistakably clear language, Congress does not intend to deprive the state of
sovereignty over its own subdivisions to the point of upsetting the usual constitutional
balance of state and federal powers.


                                              2
        There is another aspect of the state‘s status as the owner of the railroad that is
significant. The ICCTA, although it contemplates a rail system that is unified on a
nationwide basis, also contemplates a rail industry that is subject to relatively limited
regulation on the part of the federal government. Where the federal law has deregulated,
the states are not free to fill regulatory voids. But the ICCTA‘s deregulatory feature also
frees railroad owners to make market-based decisions and not suffer an undue level of
regulation of any kind. In the area of activity in which a private owner is free from
regulation, the private owner nonetheless ordinarily would have internal corporate rules
and bylaws to guide those market-based decisions. In other words, a private
conglomerate that owns a subsidiary railroad company is not required to decide whether
to go forward with a railroad project, for example, by tossing a coin. Rather, it can make
the decision based on its own corporate guidelines, and require its rail company to do the
same.
        When we consider that the ICCTA has a deregulatory purpose that leaves railroad
owners with a considerable sphere of action free from regulation, we see that the state, as
owner, must have the same sphere of freedom of action as a private owner. But unlike
other owners, to act in that deregulated sphere, the state ordinarily acts through its laws.
In the circumstances here, those state laws are not regulation in the marketplace within
the meaning of the ICCTA, but instead are the expression of the state‘s choice as owner
within the deregulated sphere. This is how the deregulatory purpose of the ICCTA
necessarily functions when state-owned, as opposed to privately owned, railroad lines are
involved.
        We acknowledge that, like the private owner, the state as owner cannot adopt
measures of self-governance that conflict with the ICCTA or invade the regulatory
province of the federal regulatory agency. But there is a sphere of regulatory freedom
enjoyed by owners, and there are at least two specific areas of regulatory freedom that are
present in this case. Specifically, environmental decisions concerning track repair on an
                                               3
existing line and the level of freight service within certain boundaries to be offered on an
existing line appear to be within the regulatory sphere left open to owners. We conclude
that this freedom belongs to the state as owner, as well, and under these circumstance, the
ICCTA does not preempt the application of CEQA to this project.
                             I. Factual and Procedural Background
        An intrastate railroad line runs from Lombard, in Napa County, north to Arcata, in
Humboldt County. The northern, or so-called Eel River division of the line, is quite
decayed and runs through the environmentally sensitive Eel River Canyon. The southern,
or so-called Russian River division of the line, also formerly in poor condition, runs
between a southern terminus in Lombard north to Willits, in Mendocino County. There
is a connection to an interstate rail line at Lombard. The project under review involves
resumption of freight service in the Russian River division.
        A. History of public ownership
        Public ownership of the line is relatively new. Historically, private railroad
companies owned the tracks and operated service on both the northern and southern
divisions of the line. These companies eventually failed economically. The state
Legislature was concerned that service on the line would be permanently abandoned. To
avoid this outcome, particularly the loss of freight service — a result that was considered
damaging to the economy of the counties through which the line ran — the Legislature
decided that the investment of public monies would be necessary. (Gov. Code, §§ 93001,
93003; see also Historical and Statutory Notes, 37A, pt. 3 West‘s Ann. Gov. Code (2005
ed.) foll. former §§ 93030-93034, p. 296.)
        In late 1989, the Legislature created NCRA (Gov. Code, § 93010), giving the
agency the power to acquire necessary property and to operate a railroad on the line, and
also to select a public or private entity to actually operate transportation services on the
line.


                                              4
       With state funds, NCRA acquired ownership or, on some sections, easement rights
over the railroad line, including the Russian River and Eel River divisions, between 1990
and 1996.1

      B. Public funding for repairs and NCRA’s repeated written commitments
regarding CEQA compliance
       In 2000 the Legislature appropriated funds to the state Department of
Transportation for allocation as directed by the California Transportation Commission,
including $60 million to NCRA to ―repair and upgrade track to meet Class II (freight)
standards.‖ (Gov. Code, § 14556.40, subd. (a)(32).) Of this, approximately $4 million
was allocated to environmental remediation.
       From 2001 to 2006 in various agreements and plans, NCRA committed to CEQA
compliance. In 2001 the state Department of Transportation entered into a funding
master agreement with NCRA to run through 2010, naming a number of state funding
sources, and binding NCRA as recipient to a number of terms, including, for example,
compliance with state auditing rules; California Transportation Commission resolutions
imposing environmental obligations; public contracting requirements; and
nondiscrimination and disabled access requirements.
       Significantly, as a condition of funding, one term of the master agreement stated
that ―[c]ompletion of the environmental process (‗clearance‘) for project by recipient
(and/or state if it affects a state facility within the meaning of the applicable statutes) is
required prior to requesting project funds for right-of-way purchase or construction. No
state agency shall request funds nor shall any state agency, board or commission


1      The portion over which NCRA holds an easement for freight service belongs to
another public agency devoted to commuter rail service (now named Sonoma Marin Area
Rail Transit, or SMART), while in turn SMART holds an easement for commuter rail
service over portions of the line owned by NCRA.



                                               5
authorize expenditures of funds for any project effort, except for feasibility or planning
studies, which may have a significant effect on the environment unless such a request is
accompanied by an environmental impact report [as] mandated by [CEQA].‖ (Some
capitalization omitted.) Funding was also conditioned on completion of strategic and
capital assessment plans. These also acknowledged that NCRA was required to comply
with CEQA before approving or carrying out the project.
       In its 2006 application to the state Department of Transportation for $31 million to
bring the line up to certain standards, NCRA asserted that ―appropriate CEQA and NEPA
documentation will be prepared‖ and various state, federal, and local agencies
approached for permits. Environmental obligations under CEQA and the National
Environmental Policy Act (NEPA; 42 U.S.C. § 4321; et seq.) were repeatedly
acknowledged and fulfillment of those obligations was noted in funding requests.2
       A 2006 supplement to the master agreement between the state Department of
Transportation and NCRA described the scope of the work to be financed to include

2       In NCRA‘s 2002 capital assessment report, NCRA acknowledged that much of the
line was ―not in compliance with several state environmental regulations,‖ a circumstance
it also acknowledged eventually led to a 1999 consent decree with various state agencies.
(See post, at p. 10.)
        The capital assessment report described environmental compliance concerns,
leading to a recommendation that ―a combined document (CEQA and NEPA) be
prepared and processed . . . that involves facility upgrades, landslide stabilization and
reopening of the line . . . . The type of document recommended is an EIR prepared
pursuant to [CEQA].‖ The capital assessment report also explained that ―NCRA, as a
state created railroad authority, is required to comply with the provisions of . . . CEQA
prior to its decisions concerning . . . carrying out or approving a project.‖
        The capital assessment report explained that NCRA had issued a notice of
categorical exemption under CEQA for certain maintenance and repair of the track. But
overall, the report concluded, the use of categorical exemptions under CEQA was
considered unlikely to meet with approval by ―state regulatory, funding, or trustee
agencies.‖ Step-by-step plans for the EIR process were described and consultation with
approximately 30 federal, state, and local agencies was anticipated.



                                             6
various obligations under CEQA, including preliminary project and scoping activities,
draft environmental impact reports (EIRs), and a final EIR.
       The NCRA administration and contracting policy manual also called for CEQA
compliance: ―As a public agency, [NCRA] is required to comply with the California
Environmental Quality Act . . . . The Act requires public agencies to adopt a policy that
serves to implement the CEQA for activities within the jurisdiction of the agency.‖
Moreover, the manual represented, ―[NCRA] adopts the Guidelines for the
Implementation of the California Environmental Quality Act; California Code of
Regulations, Title 14, Division 6, Chapter 3, Sections 15000-15387 and Appendices A-K
(‗CEQA Guidelines‘) in its entirety . . . .‖
       C. Agreement with private operator
       NCRA contracted with private corporations that were to actually operate freight
service on the entire line, ending up in 2006 with an arrangement with NWPCo, the real
party in interest in this litigation. The text of this 2006 ―agreement for the resurrection of
operations upon the Northwestern Pacific railroad line and lease‖ (some capitalization
omitted) designated NCRA as the owner of the line, which was under a statutory duty to
provide freight rail service on the line. NWPCo was designated a franchisee, selected to
operate freight service on the line.
       The agreement memorialized NWPCo‘s duty (under a certificate of convenience
and necessity granted to it by the federal Surface Transportation Board) to provide safe,
adequate, and efficient facilities and service. The agreement provided that NWPCo is the
operator responsible for complying with federal and state safety regulations. Under the
agreement, NWPCo leased portions of the Russian River division owned by NCRA and
gained an assignment of portions of the line that NCRA held under an easement, with an
option involving the northern sections of the line. The agreement was subject to a
number of conditions, including ―NCRA having complied with the California


                                               7
Environmental Quality Act . . . as it may apply to this transaction.‖ (Italics added.) The
agreement had a term of five years with options to renew.
        NCRA was responsible for restoring all portions of the line to a certain level of
―utility.‖ NCRA committed that all available public funds designated for restoration and
improvement would be invested and that ―[i]t shall be solely NCRA‘s responsibility to
use its best efforts to seek public funding to reopen, rehabilitate, restore, and continue the
level of utility of the [line].‖ NWPCo had no obligation to provide service before this
was accomplished. ―If, however, [NWPCo] elects to operate . . . over any portion of the
[line] at a lesser Utility Level,‖ then NWPCo was responsible for maintenance. NWPCo
was to be the sole provider of freight service on the line, would manage and control train
operations after service resumed, and generally would be responsible for maintenance
after service commenced. NWPCo had authority to seek the relevant federal agency‘s
permission to suspend or discontinue service if service were to become ―not economical
in consideration of traffic volumes‖ for it to perform its maintenance obligation, although
NWPCo agreed not to seek authority to suspend or discontinue service without NCRA
approval. ―In the event that NCRA unsuccessfully opposes such suspension or
discontinuance of service it may terminate this Agreement as to any section or any
portion of a section of the . . . line necessary in its sole discretion to restore service to
[that] portion of the . . . line . . . .‖
        D. Regulation of the rail line
                1. Federal regulatory action and involvement of various state agencies
        As defendants and real party in interest stress, the project falls within the
regulatory authority of the federal agency charged with administration of the ICCTA.
Accordingly, in 1996, NCRA filed a notice of exemption with the newly established
Surface Transportation Board (STB) — the successor to the prior federal regulatory
agency, the ICC. The 1996 notice of exemption produced an exemption from ordinary
regulatory certification proceedings and permitted NCRA‘s acquisition of and operation
                                                8
on the line. (See 49 C.F.R. § 1150.41 (2016) [acquisition or operation by class III rail
carrier].)
       In 2001, the first private operator selected by NCRA filed its own notice of
exemption with the STB, thereby permitting a change of operators from NCRA to the
private company without further procedures. (See 49 C.F.R. § 1150.31(a)(3) (2016)
[exemption from certification procedure for change in operators].)3
       This prior operator was succeeded by real party in interest, NWPCo. In 2007
NWPCo filed its notice of exemption with the STB, permitting the change in operator
along the Russian River division of the line without a certification procedure. (See 49
C.F.R. § 1150.31(a)(3) (2016).) In 2007, plaintiff Friends of the Eel River and others
petitioned the STB to revoke the exemption. The challengers complained that increased
train traffic on the line would, under STB regulations, necessitate federal environmental
review of the planned operation. In rejecting the petition, the STB explained that the
level of frequency of freight service being planned was below the STB‘s regulatory
threshold triggering the need for federal environmental review. It also noted that the
ICCTA favors exemption from regulation whenever appropriate unless the STB has
identified an abuse of market power.
       Several other state and federal agencies have taken actions respecting the line. Of
note is safety regulation by the Federal Railroad Administration (FRA), an agency of the
United States Department of Transportation charged with ensuring railroad safety. In
1990, prior to state ownership, the FRA closed portions of the line because of safety

3       After this operator ceased service, but before real party in interest was certified,
the STB was involved in resolving a shipper‘s action for damages against NCRA for
failing to repair the line and reinstitute service, in violation of its duty as a common
carrier. First in 2005, and then in 2007, the STB denied the shipper‘s complaint in part
because the agency accepted NCRA‘s explanation that it lacked adequate funds for
repairs.



                                              9
concerns arising from inadequate maintenance. Safety problems continued as the line
suffered from deferred maintenance and inadequate capital investment. The Federal
Emergency Management Agency (FEMA) also became involved after flooding damage
caused additional problems. The FRA worked with the state Public Utilities
Commission, but both agencies, along with FEMA, found that defective track conditions
had not been corrected, and in 1998 the FRA shut down service all along the line. Repairs
and operational improvements were made, and in May 2011, the FRA granted partial
relief from its emergency order, permitting resumption of traffic on the southern portion
of the line at issue in this litigation, but not on the northern section.
       In addition, various state entities, including the Department of Fish and Wildlife
and Department of Toxic Substances Control, along with the North Coast Regional Water
Quality Control Board, investigated poor environmental conditions on the line,
documenting that in undertaking repairs, NCRA failed to comply with state
environmental statutes and regulations. They ultimately filed a complaint against NCRA
for violation of the state Fish and Game Code, Health and Safety Code, and Water Code.
In 1999 the parties entered into an elaborate consent decree binding NCRA to cease
certain environmentally destructive practices and to undertake remediation.
               2. Proceedings under CEQA
       Over a period of years, NCRA, acting as lead agency, undertook the following
procedures under CEQA.
       In July 2007, NCRA submitted a notice of preparation of an EIR for the freight
rail project that is the subject of this litigation. The notice described the project as
involving the resumption of freight rail service on the Russian River division of the line,
saying more specifically that (1) NCRA proposed a project to resume freight rail service
on the Russian River division, and (2) that NWPCo, ―NCRA‘s selected rail operator,
proposes to resume the operations of freight service‖ on the line.


                                               10
       The initial study for the ―Russian River Division Freight Rail Project‖ also
described the project as NCRA‘s proposal to resume freight rail service and again it
pointed to NWPCo‘s involvement as the actual operator that would resume freight
service. The initial study also recounted NCRA‘s proposed ―rehabilitation of its track,
signals, embankments, and bridges,‖ saying that some of these activities may cause a
significant impact on the environment and would be analyzed in the EIR.
       After public and agency consultation and scoping meetings, in March 2009 NCRA
issued a draft EIR, again describing the project as NCRA‘s resumption of freight rail
service on the Russian River division, with NWPCo designated as ―NCRA‘s contract
operator.‖ The draft EIR noted that certain rehabilitation along the line had already been
covered under a June 2007 notice of exemption, and that NCRA and NWPCo had been
bound by an earlier consent decree as to that project.4 The draft EIR also noted that
NCRA and NWPCo were bound by the 1999 consent decree brought by the various state
agencies (see ante, at p. 10), requiring them to prepare and implement waste clean-up
plans, ―conduct all rail operations in accordance with applicable environmental laws,‖
and properly dispose of hazardous materials.
       The draft EIR stated that NWPCo proposed to resume freight operations, and that
resumption of rail service would serve statewide air quality goals and reduce diesel truck


4       In 2007 NCRA had filed a notice of categorical exemption under CEQA for a
separate project contemplating maintenance and repair activities along the line. The City
of Novato sought mandamus and declaratory relief against NCRA and other agencies.
The Court of Appeal and the parties agree that the City of Novato‘s lawsuit was directed
at the categorical exemption; the record does not appear to contain the complaint. Under
the parties‘ consent decree of November 2008, NCRA admitted the court‘s jurisdiction.
The parties bound themselves to various mitigation measures within the City of Novato,
and to follow CEQA in accomplishing the work. (The decree also referred to NCRA‘s
ongoing preparation of an EIR under CEQA for the projected reopening of freight service
— that is, the project involved in the present litigation.)



                                            11
traffic, among other things. It acknowledged that ―NCRA, acting as the CEQA lead
agency, has a duty pursuant to CEQA guidelines to neither approve nor carry out a
project as proposed unless the significant environmental effects have been mitigated to
an acceptable level, where possible.‖ (Italics added.) The draft EIR provided a lengthy
analysis of potential environmental impacts of resuming freight service, including
consideration of rehabilitation of the line, cumulative impacts, and potential mitigation
measures.
       After further hearings, a second draft EIR was filed in November 2009.
Comments were received in 2010 and the final EIR was released in March 2011. The
final EIR again summarized the project as being to resume freight service on the Russian
River division of the line, noting that ―[r]epairs to the line to bring the rail line into
conformance with FRA . . . [s]tandards have been completed for most of the line, and it is
now ready to resume service to Windsor.‖ The project also was said to include four
specific, rather limited repair and construction projects.
       The final EIR rebutted comments claiming that the project actually included the
northern or Eel River portion of the line — then consisting of unusable tracks. It also
declared that rehabilitation activities covered by the 2007 notice of exemption were
considered a separate project. Also appearing were rebuttal to concerns about the
economic viability of the project, mitigation measures, and disposal of hazardous
materials and waste.
       An addendum to the EIR responding to additional comments was attached in May
2011. Joint regulatory authority was noted: ―The NCRA plans and procedures as they
relate to NWPCo. include, but are not limited to, rules and regulations of the Federal
Railroad Administration, the Surface Transportation Board, federal, state and local laws,
rules and regulations where applicable, the 2006 Lease by and between NCRA and
NWPCo., the Operating Agreement with SMART, and Easement rights granted to and by
NCRA. NWPCo. maintains certain obligations under each of these entities, and will
                                               12
continue to maintain such obligations while operating on the line. If plans and
procedures change over time, the revisions will be subject to the appropriate regulatory
and environmental review. The agreement/contract between NCRA and NWPCo will
reflect the revisions, as appropriate.‖
       In June 2011, NCRA‘s board of directors (Board) adopted a resolution certifying
the final EIR and approving the project, again defined as the resumption of limited freight
rail service on the so-called Russian River division of the line, along with the four
specified rehabilitation, construction, and repair activities.
       According to the resolution, the final EIR disclosed that the project posed
significant or potentially significant adverse environmental impacts that may be
mitigated; that with certain exceptions the significant adverse environmental impacts had
been eliminated or reduced to insignificance; and as to certain impacts, that additional
mitigation was infeasible. Having balanced the risks and benefits, the Board determined
that the benefits outweighed the unavoidable adverse environmental effects.
       The Board made a finding that environmental impacts of development on the Eel
River division of the line properly had been omitted from consideration because the
Board had no intention of resuming service in that division. It stated: ―Given that there
are no financial resources available to resume services in the [Eel River division], the
Board does not intend to operate [there].‖
       It appears that limited freight service has resumed on the southern or Russian
River division of the line.
       E. Litigation
       In July 2011, plaintiffs Friends of the Eel River and Californians for Alternatives
to Toxics filed separate petitions for writ of mandate, naming NCRA as defendant and
NWPCo as real party in interest. Friends of the Eel River sought alternative and
peremptory writs of mandate directing NCRA to set aside its findings and certification of
the EIR and approval of the project and directing its compliance with CEQA, as well as a
                                              13
stay and preliminary and permanent injunctions preventing NCRA and its agents from
―taking any action to implement, or further approve, or construct the Project, pending full
compliance with the requirements of CEQA and the CEQA Guidelines,‖ and restraining
real party in interest from ―taking any action to implement or construct the Project,
pending full compliance with the requirements of CEQA and the CEQA Guidelines.‖
Friends of the Eel River alleged two causes of action, both for violations of CEQA.
These challenged the adequacy of the EIR and of the mitigation measures and
alternatives that had been considered and adopted, and the adoption of findings assertedly
not supported by substantial evidence. The challenge was based in part on assertedly
inadequate consideration of hazardous materials and impacts on water quality and
threatened species, and in part on the absence of consideration of the northern or Eel
River portion of the railroad.
       Californians for Alternatives to Toxics petitioned for a writ of mandate ordering
NCRA to set aside certain findings, the certification of the final EIR, and approval of the
project and instead ―to follow California regulations and statutes, including [CEQA], in
any review of and new decision for the Russian River Division Freight Rail Project.‖ It
sought to enjoin NCRA and NWPCo ―from engaging in any activity pursuant to the
Russian River Division Freight Rail Project until the Project complies with all applicable
California regulations and statutes, including requirements of [CEQA].‖
       In all, Californians for Alternatives to Toxics alleged 10 causes of action for
violations of CEQA. It alleged various inadequacies in the information provided in the
projects descriptions and EIRs; inadequate response to public comment; failure to
evaluate the environmental impact of various levels of freight service and of track repair
and rehabilitation on water, soil, air, and other resources; inadequate consideration of
mitigation measures and alternatives; and improper findings of ―overriding
considerations‖ not supported by substantial evidence. The petition also asserted that
efforts to reopen the rail line in the Eel River division threatened serious environmental
                                             14
harm, especially harm to water in rivers and coastal areas. An 11th cause of action
incorporated the prior allegations and alleged that irreparable injury to natural resources
constituted a basis for injunctive relief. The petition sought an order that NCRA set aside
its certification of the final EIR and its findings and approvals, that it follow CEQA, and
that NCRA and NWPCo be enjoined from ―engaging in any activity pursuant to the
Russian River . . . Project until the Project complies with . . . [CEQA].‖
       At this point NCRA concluded that further challenges should be met with the
argument that any application of CEQA to the project, i.e., the resumption of freight
service and the specified rehabilitation work, was preempted by the ICCTA.
       The NCRA removed the matters to federal court, arguing the claims were
preempted. The federal court found the dispute was not subject to so-called complete
preemption, that is, plaintiffs were not attempting to litigate a federal cause of action in
the guise of a state cause of action.5 In addition, it determined that a case is not subject to
removal solely on the basis of a federal defense, including the defense of preemption.
Accordingly the federal court remanded the matters to state court.
       In April 2013, the NCRA Board issued a resolution rescinding its resolution of
June 2011, ―to clarify that the NCRA did not have before it a ‗project‘ as that term is
used in [CEQA] and did not approve a project when it certified the EIR that was the


5      The court explained that the term ― ‗ ―[c]omplete preemption‖ is a short-hand for
the doctrine that in certain matters Congress so strongly intended an exclusive federal
cause of action that what a plaintiff calls a state law claim is to be recharacterized as a
federal claim.‘ ‖ The court determined that the ICCTA does not provide the exclusive
cause of action for plaintiffs‘ CEQA claims. On the contrary, the court observed, the
federal act‘s preemption provision does not purport to displace any and all state law
causes of action, quoting Fayard v. Northeast Vehicle Services, LLC (1st Cir. 2008) 533
F.3d 42, 47: ― ‗No one supposes that a railroad sued under state law for unpaid bills by a
supplier of diesel fuel or ticket forms can remove the case based on complete preemption
simply because the railroad is subject to the ICCTA.‘ ‖



                                              15
subject of the Resolution. More specifically, NCRA rescinds any word, phrase or section
of the Resolution to the extent that it purported to approve a project for the resumption of
railroad operations . . . .‖ The Board acknowledged that the EIR process had been a
valuable source of information for it and for the public, but that the EIR was not legally
required as a condition of operation of the line. Rather, ―[t]he ICCTA preempts CEQA‘s
application over railroad operations on the line‖ and once the Board entered the lease
with NWPCo in 2006, ―no further discretionary actions or approvals were necessary by
NCRA as a condition to NWPCo‘s right to operate the line‖; that after the STB approved
NWPCo‘s application for an exemption to operate the line in August 2007, ―no further
action or approval was required by the STB as a condition to NWPCo‘s right to operate
the line‖; that after the FRA partially lifted its emergency order in May 2011, ―no further
action or approval was required by the [FRA], or any other state or federal agency, as a
condition to NWPCo‘s right to operate the line, and NWPCo had the legal right to
immediately commence operations at that time.‖
       With respect to its representations in its 2006 application for state funds, resulting
in appropriation to NCRA of $31 million for track repair and restoration (see ante, at
pp. 5-6), the rescission resolution stated that the Board mistakenly had believed it must
prepare an EIR, but that in any event, the appropriated money had been exhausted on the
track repair project that was the subject of the categorical exemption. It averred that
―well before . . . the [FRA‘s] partial lifting of [its emergency order], the TCRP [traffic
congestion relief program]-funded repair work had been substantially completed and all
TCRP funds allocated by the CTC [California Transportation Commission] to NCRA for
the repair work had been used; . . . [¶] [and] no TCRP funds were allocated to NCRA by
the CTC for railroad operations on the line, nor were any TCRP funds used for actual
railroad operations.‖
       As for NCRA‘s operating and lease agreement with NWPCo, the Board
acknowledged that ―the lease agreement contains a provision that NCRA will comply
                                             16
with CEQA ‗as it may apply to this transaction‘ (meaning the NCRA‘s entry into the
lease agreement), but the lease transaction was not challenged on CEQA grounds within
the statutory time period, thus obviating NCRA‘s obligation to determine whether CEQA
would have attached to the lease transaction.‖
       The Board noted that freight rail operations had resumed in July 2011.
       Once the matters returned from federal to state court, NCRA and NWPCo
demurred on the ground that the challenge under CEQA was preempted by the ICCTA
and was time-barred. The trial court agreed with them that the application of CEQA was
preempted, but overruled the demurrer because it found NCRA judicially estopped from
pursuing that defense in light of positions it had taken in litigation ending in the consent
decrees.
       NCRA and NWPCo thereafter filed a motion to dismiss for mootness in light of
the Board‘s rescission of its earlier resolution. The matter proceeded to a contested
hearing before a different judicial officer. That officer reconsidered the estoppel point
and rejected it, albeit agreeing with the first judicial officer that the preemption defense
applied. The court entered orders denying the petitions for writ of mandate.
       The Court of Appeal affirmed. The court held initially that the controversy was
not moot. It also concluded that the ICCTA was broadly preemptive of CEQA, and that
the so-called market participant doctrine did not defeat preemption. It rejected plaintiffs‘
view that principles of state sovereignty require that the ICCTA be interpreted to spare
from preemption the state‘s control over NCRA, the state‘s own subdivision. The Court
of Appeal also held that plaintiffs lacked standing to premise their challenges on the
agreement between NCRA and NWPCo. Finally, it rejected their judicial estoppel
argument.
       In its opinion, the Court of Appeal rejected the decision of another Court of
Appeal, namely Town of Atherton v. California High-Speed Rail Authority (2014) 228
Cal.App.4th 314, which had addressed a route-selection element of California‘s high-
                                              17
speed rail project and, principally relying on a market participant theory, had concluded
that there was no ICCTA preemption of CEQA in that case.
       Friends of the Eel River and Californians for Alternatives to Toxics petitioned for
review, challenging the Court of Appeal‘s analysis and conclusion on the preemption
issue. (The issues of mootness and judicial estoppel are not preserved for our review.)
                                      II. Discussion
       A. Introduction
       The Court of Appeal found that the ICCTA preemption language is broad and
concluded that ―CEQA is preempted by federal law when the project to be approved
involves railroad operations.‖ Plaintiffs, by contrast, rely on presumptions governing the
proper analysis of federal preemption language to contend that the ICCTA does not
preempt application of CEQA in this case.
       We begin with general preemption principles, including certain presumptions.
Because the question before us is fundamentally one of statutory construction, we next
turn to the text of the ICCTA preemption provision, the overall function of the ICCTA,
and the unifying and deregulatory purpose disclosed by legislative history of the federal
law. We observe that the ICCTA continues and strengthens a federal approach calling
for a national as opposed to balkanized rail system. It also is apparent that the ICCTA
completes a congressional trend in favor of relieving rail transportation of regulation and
substituting the market as a dominant force.
       We next consider the preemptive impact of the ICCTA, especially as to state
environmental regulation. We briefly outline the CEQA scheme that the Court of
Appeal, along with NCRA and NWPCo, contend is preempted here.
       As the Court of Appeal correctly pointed out, the national system of railroads is of
peculiarly federal, not state, concern. The ICCTA is both unifying and deregulatory; it
would undermine both values if states could compel the rail industry to comply with
regulation of railroads that conflicted with federal law, or even to comply with
                                            18
supplementary regulation of railroads on a state-by-state basis. We acknowledge that, at
least as to privately owned railroads, state environmental permitting or preclearance
regulation that would have the effect of preventing a private railroad from operating
pending CEQA compliance would be categorically preempted.
       As we will explain, federal courts — even those that take a relatively narrow view
of the preemption language of the ICCTA — as well as the STB agree in this respect. In
the ordinary regulatory setting in which a state seeks to govern private economic conduct,
applying CEQA to condition state permission to go forward with railroad operations
would be preempted.
       This conclusion, however, does not resolve the application of CEQA to NCRA.
The ICCTA preempts solely regulation of rail transportation, and we will discuss whether
it actually constitutes regulation when the state is the owner of the rail line and, by state
law, prescribes the process by which its own subsidiary agency will make decisions
concerning the resumption of rail service along a rail line. We will consider whether,
when the state establishes the general law according to which the state‘s own subsidiaries
are to use the funds and powers allocated by the state — including for railroad projects —
this constitutes not regulation but instead self-governance on the part of the state. We
will conclude that CEQA may be considered a matter of self-governance in this setting —
the control exercised by the state over its own subdivision.
       We acknowledge that, although a CEQA process as applied to a private railroad
might also be considered to reflect self-governance — in the sense that the state is
governing how its subsidiary governmental entity makes development decisions
concerning developments actually carried out by other, private owners — such an
application of CEQA to a private line nonetheless would be preempted. Yet we believe
that the analysis is different when the state is the owner of the railroad. We will discuss
United States Supreme Court authority in support of this view, primarily the presumption
that in the absence of unmistakably clear language, courts assume that congressional
                                              19
preemption provisions are not intended to upset the usual constitutional balance of state
and federal powers. We also will discuss, by analogy, the so-called market participant
doctrine, relying on it for its presumption that, in connection with state market activities
that are not regulatory, the state ordinarily has the same freedom of action as a private
entity. And we will address the apparent freedom of action accorded to owners over
environmental considerations presented by track repair and increased levels of service on
existing railroad lines.
       Because the present project appears to fall within that area of freedom of action,
applying CEQA to NCRA‘s decisions on the project appears not to be regulation by the
state but instead self-governance by the owner. As we will explain, because we see no
indication in the language of the ICCTA that Congress intended to preempt such self-
governance in that field, we will conclude that application of CEQA to NCRA in the
present case is not preempted.
       Finally, we will discuss the application of principles developed in this opinion to
NWPCo, the private lessee that operates the freight service on the railroad.
       B. Federal preemption
              1. General principles
       ―The Supremacy Clause provides that ‗the Laws of the United States‘ (as well as
treaties and the Constitution itself) ‗shall be the supreme Law of the Land . . . any Thing
in the Constitution or Laws of any state to the Contrary notwithstanding.‘ Art. VI, cl. 2.
Congress may consequently pre-empt, i.e., invalidate, a state law through federal
legislation. It may do so through express language in a statute. But even where . . . a
statute does not refer expressly to pre-emption, Congress may implicitly pre-empt a state
law, rule, or other state action.‖ (Oneok, Inc. v. Learjet, Inc. (2015) 575 U.S. ___ [135
S.Ct. 1591, 1594-1595] (Oneok); see Quesada v. Herb Thyme Farms, Inc. (2015) 62
Cal.4th 298, 307-308 (Quesada).)


                                             20
       When express preemption is claimed, the court‘s ―task is to ‗identify the domain
expressly pre-empted.‘ [Citation.] To do so, we focus first on the statutory language,
‗which necessarily contains the best evidence of Congress‘ pre-emptive intent.‘
[Citation.]‖ (Dan‟s City Used Cars, Inc. v. Pelkey (2013) 569 U.S. ___ [133 S.Ct. 1769,
1778].)
       Indeed, in all preemption cases, whether express or implied preemption is claimed,
the fundamental question regarding the scope of preemption is one of congressional
intent. (Quesada, supra, 62 Cal.4th at p. 308; Brown v. Mortensen (2011) 51 Cal.4th
1052, 1059-1060; see Wyeth v. Levine (2009) 555 U.S. 555, 565; Lorillard Tobacco Co.
v. Reilly (2001) 533 U.S. 525, 541-542.)
       Implied preemption exists under defined circumstances. First, there may be
― ‗field‘ preemption‖ when ―Congress . . . intended ‗to foreclose any state regulation in
the area,‘ irrespective of whether state law is consistent or inconsistent with ‗federal
standards.‘ [Citation.] In such situations, Congress has forbidden the State to take action
in the field that the federal statute pre-empts.‖ (Oneok, supra, 575 U.S. ___ [135 S.Ct. at
p. 1595], italics omitted.) Alternatively, there may be ―conflict‖ or ―obstacle‖
preemption. These are present when ― ‗compliance with both state and federal law is
impossible,‘ or where ‗the state law ―stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.‖ ‘ [Citation.] In either
situation, federal law must prevail.‖ (Ibid.; see Quesada, supra, 62 Cal.4th at p. 308.)
       Implied preemption may exist even in company with an express preemption
clause. (Sprietsma v. Mercury Marine (2002) 537 U.S. 51, 65 [in context of conflict
preemption].)
                2. Presumptions
       There is a presumption that protects against undue federal incursions into the
internal, sovereign concerns of the states. The United States Supreme Court expressed
the rule in Gregory v. Ashcroft (1991) 501 U.S. 452 (Gregory) and Nixon v. Missouri
                                             21
Municipal League (2004) 541 U.S. 125 (Nixon). That case law posits a presumption that
Congress would not alter the balance between state and federal powers without doing so
in unmistakably clear language. (Nixon, supra, 541 U.S. at pp. 140-141; Gregory, supra,
501 U.S. at pp. 459-461; Sheriff v. Gillie (2016) 578 U.S. ___ [136 S.Ct. 1594, 1602]
(Gillie); City of Los Angeles v. County of Kern (2014) 59 Cal.4th 618, 631 [―Principles of
federalism dictate a distinct approach to the construction of statutes impinging on state
sovereignty, one designed to ensure courts do not assume an incursion where none was
intended‖].)
       A related presumption arises in the context of the so-called market participant
doctrine. Federal law ordinarily preempts only state regulation of a defined field. Not all
state law constitutes regulation. There may be no regulation and hence no preemption in
circumstances when the state is acting in the marketplace in a proprietary rather than
regulatory mode. This doctrine ―is not a wholly freestanding doctrine, but rather a
presumption about congressional intent.‖ (Engine Manufacturers Ass‟n v. South Coast
Air Quality Management Dist. (9th Cir. 2007) 498 F.3d 1031, 1042 (Engine
Manufacturers).) Courts presume Congress does not intend to reach and preempt a
state‘s proprietary arrangements in the marketplace in the absence of evidence of such an
expansive congressional intent. (Building & Constr. Trades Council v. Associated
Builders & Contractors of Mass./R.I., Inc. (1993) 507 U.S. 218, 227, 231, 233 (Boston
Harbor); see American Trucking Ass‟ns, Inc. v. City of Los Angeles (2013) 569 U.S. ___
[133 S.Ct. 2096, 2102-2103] (American Trucking); Engine Manufacturers, supra, 498
F.3d at p. 1042.)
       C. The ICCTA
       We must apply these preemption principles to the ICCTA. But first we must
understand that enactment.




                                            22
              1. The federal law.
       The ICCTA contains an express preemption provision, which provides: ―The
jurisdiction of the STB over — [¶] (1) transportation by rail carriers, and the remedies
provided in this part with respect to rates, classifications, rules (including car service,
interchange, and other operating rules), practices, routes, services, and facilities of such
carriers; and [¶] (2) the construction, acquisition, operation, abandonment, or
discontinuance of spur, industrial, team, switching, or side tracks, or facilities, even if the
tracks are located, or intended to be located, entirely in one State, [¶] is exclusive.
Except as otherwise provided in this part, the remedies provided under this part with
respect to regulation of rail transportation are exclusive and preempt the remedies
provided under Federal or State law.‖ (49 U.S.C. § 10501(b).)
       To understand this preemption provision, we must gain a general understanding of
the ICCTA and must understand some of its key terms. The term ― ‗rail carrier‘ means a
person providing common carrier rail transportation . . . .‖ (49 U.S.C. § 10102(5).) The
term ― ‗transportation‘ includes [¶] (A) a locomotive, car, vehicle, vessel, warehouse,
wharf, pier, dock, yard, property, facility, instrumentality, or equipment of any kind
related to the movement of passengers or property, or both, by rail, regardless of
ownership or an agreement concerning use; and [¶] (B) services related to that
movement, including receipt, delivery, elevation, transfer in transit, refrigeration, icing,
ventilation, storage, handling, and interchange of passengers and property . . . .‖
(Id., § 10102(9).)
       As for the general outlines of the ICCTA, it requires carriers to establish
reasonable rates, rules, and practices related to transportation or services (49 U.S.C.
§ 10702); prohibits discriminatory pricing (id., § 10741); and establishes common carrier
obligations requiring provision of transportation or services on reasonable request.
(Id., § 11101; see Decatur County Commissioners v. Surface Transp. Bd. (7th Cir. 2002)
308 F.3d 710, 715 (Decatur) [―A railroad may not refuse to provide services merely
                                              23
because to do so would be inconvenient or unprofitable. [Citation.] The common carrier
obligation, however, is not absolute‖].) The act prohibits rail carriers from improper
obstruction of through traffic or freight (49 U.S.C. § 10744), and prohibits state or local
tax discrimination against rail property. (Id., § 11501.)
       The ICCTA assigns administrative and regulatory duties to the STB. (49 U.S.C.
§§ 1301- 1302.) The STB ―has jurisdiction over transportation by rail carrier.‖ (Id.,
§ 10501(a)(1).) The STB‘s jurisdiction applies even to intrastate transportation so long as
it is ―part of the interstate rail network.‖ (Id., § 10501(a)(2)(A).) A number of
transactions require approval from the STB. The ICCTA provides for STB licensing of
railroad construction and operations (id., § 10901), as well as for STB authorization to
abandon a rail line or discontinue service. (Id., § 10903; but see GS Roofing Products
Co., Inc. v. Surface Transp. Bd. (8th Cir. 2001) 262 F.3d 767, 773 [carriers unilaterally
may temporarily discontinue service by announcing embargo]; see also Decatur, supra,
308 F.3d 710 [20-month embargo held reasonable].) The STB has authority to prescribe
routes and certain rates (49 U.S.C. § 10705) and to adjudicate claims of unreasonable
rates arising from market dominance. (Id., § 10707.) The act provides for STB approval
of railroad mergers and consolidation (id., §§ 11323-11324), including leases or contracts
to operate property of another rail carrier, acquisition of control of a rail carrier or nonrail
carrier, and acquisition by a rail carrier of trackage rights over a line owned or operated
by another. (Ibid.)
       As relevant to the present case, a certificate from the STB is required for rail
carriers to construct or operate on new or extended lines, and noncarriers require a
certificate authorizing acquisition or operation of a line. (49 U.S.C. § 10901(a).) At the
same time, the STB must grant such certificates unless the request is ―inconsistent with
the public convenience and necessity.‖ (Id., § 10901(c).)
       STB regulations also govern the application of federal environmental protection
law to railroad projects. (49 C.F.R §§ 1105.1-1105.12 (2016); see especially id.,
                                              24
§ 1105.6 [environmental impact statements normally are required for rail construction
projects, with specified exceptions; STB environmental assessments are required for
abandonment, discontinuance of passenger or freight services (with exceptions) and for
acquisitions, leases, or mergers resulting in changes exceeding certain thresholds; the
STB has authority to modify requirements for certain proceedings]; see also Alaska
Survival v. Surface Transp. Bd. (9th Cir. 2013) 705 F.3d 1073, 1078 (Alaska Survival)
[when determining whether to authorize construction of a new extension of a railroad
line, the STB considers the environmental record]; 3 West‘s Fed. Administrative Prac.
(2016) Transportation, ch. 53, Surface Transportation Board, § 5390.) Other federal
agencies, including the FRA, also participate along with the STB in environmental
regulation of the rail industry, especially with regard to construction of new railroad
lines. (Alaska Survival, supra, 705 F.3d at p. 1078; see also California High-Speed Rail
Authority, Exemption (STB, June 13, 2013, No. FD 35724) 2013 WL 3053064, p. * 22.)
              2. Purpose and history of the ICCTA
       The ICCTA both unifies the rail industry into a national system subject to unitary
federal regulation, and also deregulates the industry. The deregulatory and unifying
purpose of the ICCTA appears in its history. Preemption of state regulation of rail
transportation has a long history that is part of a federal effort to establish uniform
regulation of the rail industry across state lines. More recent enactments (including the
Staggers Rail Act of 1980 (Staggers Act) and the current enactment, the ICCTA), achieve
broad deregulation at the federal level as well, while maintaining preemption of state
remedies.
       The ICCTA arose in the following context. In the 19th century, railroad owners
achieved monopolies that were oppressive to other businesses and distorted the market
for freight rates and services. (See H.R.Rep. No. 104-311, 1st Sess., p. 90 (1995);
Sen.Rep. No. 104-176, 1st Sess., p. 2 (1995); Eldredge, Who‟s Driving the Train?
Railroad Regulation and Local Control (2004) 75 U.Colo. L.Rev. 549, 557-558
                                              25
(hereafter Eldredge).) In response, Congress adopted the Interstate Commerce Act of
1887 to regulate rates and services in the rail industry (as well as the motor carrier
industry) and resolve some of these distortions on a national basis. (See H.R.Rep.
No. 104-311, supra, p. 90; Sen.Rep. No. 104-176, supra, p. 2; Eldredge, supra, at
p. 558.) Even without an express preemption clause in that law, the high court concluded
that state court remedies for matters regulated by this earlier federal act were preempted.
(Chicago & N. W. Tr. Co. v. Kalo Brick & Tile Co. (1981) 450 U.S. 311, 318 (Chicago &
N. W.) [― ‗[I]t would be inconsistent with [federal] policy‘ . . . ‗if local authorities
retained the power to decide‘ whether the carriers could do what the Act authorized them
to do‖]; Texas & Pac. Ry. v. Abilene Cotton Oil Co. (1907) 204 U.S. 426, 440-441 (Texas
& Pac.) [inconsistency between jurisdictions would destroy the uniformity and equality
in rates that the enactment was intended to achieve].)
       Although the earlier act was intended to achieve nationwide uniformity, it came to
be seen as also having imposed an onerous regulatory burden on the industry that
Congress believed should be lifted. (H.R.Rep. No. 104-311, supra, pp. 90-91.) In an
effort to improve the railroads‘ ability to compete economically, Congress began to
relieve the industry of what it termed a ―Kafkaesque regulatory regime.‖ (Id., at p. 91.)
Congress accordingly adopted the Staggers Act, the precursor to the ICCTA. (Pub.L.
No. 96-448, supra, 94 Stat. 1895; see H.R.Rep. No. 104-311, supra, p. 91; Eldredge,
supra, 75 U.Colo. L.Rev. at p. 558.)
       The Staggers Act ―deregulated most railroad rates, legalized railroad shipping
contracts, simplified abandonments, and stimulated an explosion of service and
marketing alternatives . . . .‖ (H.R.Rep. No. 104-311, supra, p. 91.) An important
deregulatory feature was a provision giving the regulatory agency, the ICC, the
administrative power to accomplish additional deregulation through its exemption power.
(Ibid.; G. & T. Terminal Packaging Co., Inc. v. Consolidated Rail Corp. (3d Cir. 1987)
830 F.2d 1230, 1234 (G. & T. Packaging) [calling the exemption authority a ―principal
                                               26
component‖ of the enactment].) This administrative power to afford exemption from
regulation was ―employed aggressively,‖ producing what was viewed as a ―renaissance in
the railroad industry.‖ (H.R.Rep. No. 104-311, supra, p. 91.)
       With the Staggers Act, Congress not only deregulated, but also made its earlier
implied preemptive purpose express. In language that basically parallels that appearing
in 49 United States Code section 10501 today, the Staggers Act provided that ―[t]he
jurisdiction of the [ICC] . . . over transportation by rail carriers, and the remedies
provided in this title with respect to the rates, classifications, rules, and practice of such
carriers, is exclusive.‖ (49 U.S.C. former § 10501(d), added by Pub.L. No. 96-448 (Oct.
14, 1980) 94 Stat. 1895, 1915.) This language was intended to ―assure uniform
administration of the regulatory standards of the Staggers Act.‖ (H.R.Rep. No. 104-422,
1st Sess., p. 167 (1995).) It was held to go beyond the question of jurisdiction, and to
indicate that with respect to rail regulation, the Staggers Act remedies themselves were
exclusive, displacing state remedies. (G. & T. Packaging, supra, 830 F.2d at p. 1234; see
also H.R.Rep. No. 96-1430, 2d Sess., p. 106 (1980), reprinted in 1980 U.S. Code Cong.
& Admin. News 4110, 4138 [―The remedies available against rail carriers with respect to
rail rates, classifications, rules and practices are exclusively those provided by the
Interstate Commerce Act . . . and any other federal statutes which are not inconsistent
with the . . . Act. No state law or federal or state common law remedies are available‖].)
State common law remedies with respect to matters such as reasonable rates could not be
substituted to fill a gap when the ICC had decided in favor of deregulation. (G. & T.
Packaging, supra, 830 F.3d at p. 1235.) The statute did provide a limited exception to
the exclusive remedy provision, however, that permitted states to obtain ICC certification
to enforce the federal act as to purely intrastate transportation. (H.R.Rep. No. 104-311,
supra, p. 83.) There was also a disclaimer explaining that ordinary state police powers
were not preempted.


                                               27
       The Staggers Act relieved the industry of heavy federal regulation, but Congress
evidently believed further deregulation was called for. Congress ―recogni[zed] that the
surface transportation industry is competitive and that few economic regulatory activities
are required to maintain a balanced transportation network.‖ (H.R.Rep. No. 104-311,
supra, p. 82, italics added.) Accordingly in 1995, Congress adopted the current
regulatory scheme — the ICCTA. (49 U.S.C. § 10101 et seq.) According to a
congressional report on the bill, the ICCTA ―builds on the deregulatory policies that have
promoted growth and stability in the surface transportation sector. For the rail industry,
only regulations are retained that are necessary to maintain a „safety net‟ or „backstop‟
of remedies to address problems of rates, access to facilities, and industry restructuring.
. . .‖ (H.R.Rep. No. 104-311, supra, p. 93, italics added.)
       The express, statutorily defined policy of the ICCTA is ―to minimize the need for
Federal regulatory control over the rail transportation system‖ (49 U.S.C. § 10101(2)),
―to reduce regulatory barriers to entry into and exit from the industry‖ (id., § 10101(7)),
to promote a ―sound rail transportation system with effective competition‖ (id.,
§ 10101(4)), and to permit the market to establish reasonable rates. (Id., § 10101(1); see
Fayus Enterprises v. BNSF Railway (D.C. Cir. 2010) 602 F.3d 444, 450 (Fayus)
[commenting that alterations in the ICCTA were ―entirely in a deregulatory direction‖].)
The power vested in the governing agency to afford additional exemptions from
regulation on an administrative basis was enhanced; now the agency has a statutory duty
to afford exemptions ―to the maximum extent consistent with [the ICCTA].‖ (49 U.S.C.
§ 10502(a); see H.R.Rep. No. 104-311, supra, p. 96 [also noting the elimination of some
former restrictions on the granting of exemptions that were viewed as unnecessary in
light of the functioning of the market].) This provision is seen as streamlining the
regulatory process. (Alaska Survival, supra, 705 F.3d at p. 1078.) Regulations provide
for routine exemption from acquisition and operations certificate requirements (see 49


                                             28
C.F.R. § 1150.31 (2016)) — which is what occurred in the present case both for NCRA
and NWPCo.
       Still, the ICCTA does provide for federal regulation, including ―Federal regulatory
oversight of line constructions, line abandonments, line sales, leases, and trackage rights,
mergers and other consolidations . . . , antitrust immunity for certain collective activities
. . . , competitive access, financial assistance, feeder line development, emergency service
orders, and recordation of equipment liens.‖ (Sen.Rep. No. 104-176, supra, p. 7.)
       As for the preemption provision itself, as noted, former language stating the
exclusive jurisdiction of the federal agency to provide remedies was largely retained, but
the preemptive force of the statute was enhanced. Additional preemptive language was
added in the ICCTA, specifically this sentence: ―Except as otherwise provided in this
part, the remedies provided under this part with respect to regulation of rail transportation
are exclusive and preempt the remedies provided under Federal or State law.‖ (49 U.S.C.
§ 10501(b).) With this language, the limited regulatory role of the states that had been
retained by the Staggers Act was eliminated. Congressional reports announced that
―[t]he bill is intended to standardize all economic regulation (and deregulation) of rail
transportation under Federal law, without the optional delegation of administrative
authority to State agencies to enforce Federal standards, as provided in the relevant
provisions of the Staggers Rail Act.‖ (H.R.Rep. No. 104-311, supra, p. 95, italics added.)
The unifying intent of the statute remains vital. (Sen.Rep. No. 104-176, supra, p. 6 [―The
railroad system in the United States is a nationwide network. The hundreds of rail
carriers that comprise the railroad industry rely on a nationally uniform system of
economic regulation. Subjecting rail carriers to regulatory requirements that vary among
the States would greatly undermine the industry‘s ability to provide the ‗seamless‘
service that is essential to its shippers and would w[e]aken the industry‘s efficiency and
competitive viability‖].) Yet it was acknowledged that outside the regulated field, states


                                              29
―retain the police powers reserved by the Constitution.‖ (H.R.Rep. No. 104-311, supra,
p. 96.)
          D. Preemptive impact of the ICCTA on state regulation
          To review, we have seen that under 49 U.S.C. section 10501, the STB has
exclusive jurisdiction over transportation by rail carrier, including the movement of
goods and all services related to that movement. Its remedies are exclusive and expressly
preempt state remedies ―with respect to regulation of rail transportation.‖ (Id.,
§ 10501(b).)
          There is no dispute that NCRA and NWPCo are rail carriers within the meaning of
the ICCTA and have received exemptions from certificate requirements, permitting
eventual operation of services. Nor is there any dispute that their operation of freight
service on the rail line in this case is ―rail transportation‖ and is within the jurisdiction of
the STB.
                1. CEQA
          To understand whether application of CEQA to the rail carriers in this case would
constitute regulation of rail transportation within the terms of the ICCTA, we must
review some essential features of CEQA.
          CEQA embodies a central state policy to require state and local governmental
entities to perform their duties ―so that major consideration is given to preventing
environmental damage.‖ (Pub. Resources Code, § 21000, subd. (g); see Laurel Heights
Improvement Assn. v. Regents of University of California (1988) 47 Cal.3d 376, 390
(Laurel Heights).)
          CEQA prescribes how governmental decisions will be made when public entities,
including the state itself, are charged with approving, funding — or themselves
undertaking — a project with significant effects on the environment. (Pub. Resources
Code, § 21065, subd. (a) [defining a ―project‖ to include ―activit[ies] directly undertaken
by any public agency‖]; see also id., §§ 21100 [state agency procedures], 21102 [state
                                               30
agency generally cannot request state funds for a project which may have a significant
effect on the environment without an EIR], 21104 [responsibilities of state lead agencies],
21105 [state agency EIRs], 21151 [local agencies]; Sunset Sky Ranch Pilots Assn. v.
County of Sacramento (2009) 47 Cal.4th 902, 907; Mountain Lion Foundation v. Fish &
Game Com. (1997) 16 Cal.4th 105, 119 (Mountain Lion Foundation); Laurel Heights,
supra, 47 Cal.3d at pp. 390-391.)6
       The Legislature, in enacting CEQA, imposed certain principles of self-government
on public entities. In other words, CEQA is a legislatively imposed directive governing
how state and local agencies will go about exercising the governmental discretion that is
vested in them over land use decisions. (See California Building Industry Assn. v. Bay
Area Air Quality Management Dist. (2015) 62 Cal.4th 369, 383 [emphasizing CEQA‘s
function in self-government]; Citizens of Goleta Valley v. Board of Supervisors (1990) 52
Cal.3d 553, 564 (Citizens of Goleta Valley) [same]; Laurel Heights, supra, 47 Cal.3d at
p. 392 [same]; see also Mountain Lion Foundation, supra, 16 Cal.4th at p. 112 [CEQA
applies to projects calling for the lead agency to ―use its judgment in deciding whether
and how to carry out the project‖]; Western States Petroleum Assn. v. Superior Court
(1995) 9 Cal.4th 559, 566-567 [CEQA prescribes rules under which state and local
agencies are to exercise quasi-judicial as well as quasi-legislative discretion].)
       CEQA review is undertaken by a lead agency, defined as ―the public agency
which has the principal responsibility for carrying out or approving a project which may
have a significant effect upon the environment.‖ (Pub. Resources Code, § 21067, italics
added.) The lead agency‘s function in the environmental review process is so important


6      Certain projects are exempt from CEQA, including passenger or commuter rail
services (Pub. Resources Code, § 21080, subd. (b)(10)), but there is no exemption for
freight rail projects.



                                             31
that it cannot be delegated to another body. (Planning & Conservation League v.
Department of Water Resources (2000) 83 Cal.App.4th 892, 907.)
       CEQA provides for extensive review on the part of the lead public agency.
(Laurel Heights, supra, 47 Cal.3d at p. 390.) ―The EIR has been aptly described as the
‗heart of CEQA.‘ [Citations.] Its purpose is to inform the public and its responsible
officials of the environmental consequences of their decision before they are made.‖
(Citizens of Goleta Valley, supra, 52 Cal.3d at p. 564, fn. & italics omitted.)
       Agencies are directed to mitigate or avoid significant environmental impacts in
projects they carry out (or approve) if it is feasible to do so (Pub. Resources Code,
§ 21002.1, subd. (c)), retaining discretion to carry out the project notwithstanding impacts
when mitigation is infeasible and certain findings have been made. (Id., §§ 21002.1,
subd. (c), 21081.) The EIR must set forth not only environmental impacts and mitigation
measures to be reviewed and considered by state and local agencies, but also project
alternatives (id., §§ 21001, subd. (g) [local lead agencies], 21002.1, subd. (a), 21100,
subd. (b)(4) [state lead agencies]; Citizens of Goleta Valley, supra, 52 Cal.3d at pp. 564-
565) — including a “no project” alternative. (Cal. Code Regs., tit. 14, § 15126.6.) As
we have said, ―the mitigation and alternatives discussion forms the core of the EIR.‖ (In
re Bay-Delta etc. (2008) 43 Cal.4th 1143, 1162.) When economic, legal, or other
considerations make mitigation or avoidance infeasible, the agency must make a finding
of overriding benefits that outweigh environmental effects. (Pub. Resources Code,
§ 21081, subds. (a)(3), (b).)
       Typically CEQA requirements must be complied with as a condition of the
approval of projects or the undertaking of a project by the public agency itself. An
agency must not carry out a project when an EIR is certified identifying significant
environmental impacts, without first making specific findings regarding mitigation and
overriding benefits. (Pub. Resources Code, § 21081; City of Marina v. Board of Trustees
of California State University (2006) 39 Cal.4th 341, 350.)
                                             32
       CEQA is enforced with powerful remedies to ensure that the review process is
completed appropriately and the various findings are made before projects go forward.
Litigants, including members of the public, may apply to courts to order agencies to void,
either in whole or in part ―any determination, finding, or decision . . . made without
compliance‖ with CEQA. (Pub. Resources Code, § 21168.9, subd. (a); see also Code
Civ. Proc., § 1086 [standing for persons beneficially interested]; Save the Plastic Bag
Coalition v. City of Manhattan Beach (2011) 52 Cal.4th 155, 166, 170 [summarizing
principles of standing under CEQA].) CEQA affords enforcement mechanisms that may
have the effect of preventing or impeding progress on a public or private project pending
compliance with CEQA requirements. (Pub. Resources Code, § 21168.9, subd. (a)(2)
[mandate to public agency and real party in interest to suspend any or all specific project
activities until agency ―has taken any actions that may be necessary to bring the
determination, finding, or decision into compliance with [CEQA]‖].) But orders may be
limited and include ―only those mandates which are necessary to achieve compliance‖
and ―only those specific project activities in noncompliance‖ with CEQA. (Id.,
§ 21168.9, subd. (b) [severability findings].)
       Using the mechanisms we have just described, plaintiffs challenged the
evidentiary basis of NCRA‘s findings and EIR certification, seeking an order that NCRA
set aside its findings, certification, and project approval pending CEQA compliance. In
addition, plaintiffs relied on CEQA to seek an injunctive remedy to halt the project as to
both NCRA and NWPCo pending NCRA‘s further reporting, mitigation measures, and
consideration of alternatives as provided by CEQA. In other words, plaintiffs sought to
require NCRA, as the lead agency, to comply more fully with CEQA. They would
impose state law requirements on that agency as a condition of its decision to proceed
with a project defined as the resumption of freight rail service along an existing line
(together with some limited track repairs).


                                              33
              2. CEQA would be preempted as applied to halting operations
                 by a private rail line
       As the Court of Appeal recognized in its opinion in this case, there is little doubt
that application of CEQA to halt resumption of service by a private rail carrier pending
CEQA review by a state or local agency would have the effect of regulating rail
transportation and would be categorically preempted regulation.
       As the Court of Appeal pointed out, regulation of the national system of railroads
is of peculiarly federal concern, rather than one involving historic state police powers.
(See Scheiding v. General Motors Corp. (2000) 22 Cal.4th 471, 481.) We have noted
that even when the early federal law governing railroads was adopted without an express
preemption clause, the high court concluded that the need for a unified federal system
meant that state remedies must be superseded. (See Texas & Pac., supra, 204 U.S. at pp.
440-441; see also Chicago & N. W., supra, 450 U.S. at p. 318.)
       The ICCTA is unifying and deregulatory; it would undermine these values if states
could compel the railroad industry to halt service pending compliance with regulations
that conflict with federal law or invade the regulatory field of the STB. Requiring a
private rail carrier to undergo a state agency‘s CEQA review as a condition of operations
would impose an extensive state law regulatory burden on the rail carrier as a condition
of providing service. CEQA remedies could halt service on a line pending environmental
compliance even though the rail carriers were licensed by the STB to undertake
operations, and even though the STB may have determined that no environmental review
was required. Although CEQA does not on its face specifically regulate rail
transportation, its enforcement mechanisms requiring environmental compliance as a
condition of project approval involving a private rail carrier would have the effect of
regulating rail transportation, a result inconsistent with 49 U.S.C. section 10501.
       Permitting a state to regulate private railroad operations even where STB
regulation is absent or has been satisfied is also inconsistent with the broad deregulatory


                                             34
purpose of the ICCTA. State regulation would be in tension with the fact that the
ICCTA, like its predecessors, contemplates a national rail system operating with minimal
regulation, not an industry subject to a patchwork of state regulation. It would undermine
the purpose of the ICCTA if states could compel the rail industry to comply with
supplementary regulation on a state-by-state basis even when the STB has left a
regulatory hole, or, to put it more positively, a sphere of freedom of action for the owner.
As a number of courts have indicated, given the deregulatory purpose of the ICCTA,
what is deregulated under the ICCTA cannot be reregulated by the states. (See Fayus,
supra, 602 F.3d at p. 450 [the ICCTA contains no ―invitation to states to fill the
regulatory void created by federal deregulation‖]; Florida East Coast Ry. v. City of West
Palm Beach (11th Cir. 2001) 266 F.3d 1324, 1338 (Florida East Coast Ry.); Port City
Properties v. Union Pacific Ry. Co. (10th Cir. 2008) 518 F.3d 1186, 1188-1189 [the
ICCTA permits entities to construct certain tracks without STB approval, but this ―void‖
does not permit state regulation of such tracks]; CSX Transp., Inc. v. Georgia Public
Serv. Com‟n (N.D.Ga. 1996) 944 F.Supp. 1573, 1581 [rejecting claim that Georgia could
regulate the closure of ticketing agencies in the absence of federal regulation or remedies
on that subject]; Sen.Rep. No. 104-176, supra, p. 6 [nothing in the ICCTA ―should be
construed to authorize States to regulate railroads in areas where Federal regulation has
been repealed‖]; see also Boston & Maine Corp. and Town of Ayer, MA, Petition (STB,
Apr. 30, 2001, No. FD 33971) 2001 WL 458685, p. * 4 (Boston & Maine), affd. sub nom.
Boston & Maine Corp. v. Town of Ayer (D.Mass. 2002) 191 F.Supp.2d 257 [town‘s
preconstruction permit requirement preempted although STB approval not required];
Thomas Tubbs, Petition (STB, Oct. 29, 2014, No. FD 35792) 2014 WL 5508153, p. * 6;
Cities of Auburn & Kent, WA, Petition (STB, July 1, 1997, No. FD 33200) 1997 WL
362017, p. * 7 (Auburn & Kent), affd. sub nom. City of Auburn v. U.S. Government (9th
Cir. 1998) 154 F.3d 1025; North San Diego County Transit Development Board, Petition
(STB, Aug. 19, 2002, No. FD 34111) 2002 WL 1924265, p. * 5 (North San Diego).)
                                             35
       For the foregoing reasons, we acknowledge that state environmental permitting or
preclearance regulation that would have the effect of halting a private railroad project
pending environmental compliance would be categorically preempted. In the ordinary
regulatory setting in which a state seeks to govern private economic conduct, requiring
CEQA compliance as a condition of state permission to go forward with railroad
operations would be preempted.
        Federal courts — even those that do not regard the ICCTA‘s preemption clause
as broad and sweeping — as well as the STB agree with the foregoing conclusion. Some
decisions refer to the preemption provision as ―sweeping,‖ ―pervasive‖ and
―comprehensive.‖ (Auburn, supra, 154 F.3d at p. 1029 (Auburn); see also Union Pacific
Ry. Co v. Chicago Transit Auth. (7th Cir. 2011) 647 F.3d 675, 678 (Union Pacific).)
Many federal decisions, on the other hand, characterize the preemption clause of the
ICCTA as relatively narrow. (Florida East Coast Ry., supra, 266 F.3d at p. 1331 [the
ICCTA preempts ― ‗regulation of rail transportation,‘ ‖ not all laws ― ‗with respect to rail
transportation‘ ‖]; see Franks Investment Co. LLC v. Union Pacific Ry. Co. (5th Cir.
2010) 593 F.3d 404, 410 (Franks); PCS Phosphate Co., Inc. v. Norfolk Southern Corp.
(4th Cir. 2009) 559 F.3d 212, 218 (PCS Phosphate); New York Susquehanna v. Jackson
(3d Cir. 2007) 500 F.3d 238, 252 (Susquehanna).)
        But it is unnecessary to address disputes among federal courts concerning
whether to designate the preemption provision as broad or narrow, because in fact, even
those with a narrow view of preemption accept the same formulation concerning state
environmental laws. In this view, the ―preemption analysis distinguishes between two
types of preempted state actions or regulations. First, there are those state actions that are
‗categorically preempted‘ by the ICCTA because such actions ‗would directly conflict
with exclusive federal regulation of railroads.‘ [Citation.] Regulations falling within this
first category are ‗facially preempted‘ or ‗categorically preempted‘ and come in two
types: [¶] ‗The first is any form of state or local permitting or preclearance that, by its
                                             36
nature, could be used to deny a railroad the ability to conduct some part of its operations
or to proceed with activities that the [STB] has authorized . . . . [¶] Second, there can be
no state or local regulation of matters directly regulated by the [STB] — such as the
construction, operation, and abandonment of rail lines [citation]; railroad mergers, line
acquisitions, and other forms of consolidation [citation]; and railroad rates and service
[citation].‘ [¶] [Citation.] State actions such as these constitute ‗per se unreasonable
interference with interstate commerce.‘ [Citation.] As such, the preemption analysis for
state regulations in this first category is addressed to ‗the act of regulation itself‘ and ‗not
to the reasonableness of the particular state or local action.‘ [Citation.] [¶] The second
category of preempted state actions and regulations are those that are preempted as
applied. Section 10501(b) [of 49 U.S.C.] may preempt state regulations, actions, or
remedies as applied, based on the degree of interference the particular state action has on
railroad operations. ‗For state or local actions that are not facially preempted, the section
10501(b) preemption analysis requires a factual assessment of whether that action would
have the effect of preventing or unreasonably interfering with railroad transportation.‘
[Citation.] . . . . [T]he STB stated that ‗it is well settled that states cannot take an action
that would have the effect of foreclosing or unduly restricting a railroad‘s ability to
conduct any part of its operations or otherwise unreasonably burdening interstate
commerce.‘ ‖ (New Orleans & Gulf Coast Ry. Co. v. Barrois (5th Cir. 2008) 533 F.3d
321, 332, italics added & omitted (New Orleans & Gulf Coast); see also Union Pacific,
supra, 647 F.3d at p. 679; Franks, supra, 593 F.3d at pp. 410, 413; Adrian & Blissfield
Ry. Co. v. Village of Blissfield (6th Cir. 2008) 550 F.3d 533, 539-540 (Adrian &
Blissfield); Emerson v. Kansas Southern Ry. Co. (10th Cir. 2007) 503 F.3d 1126, 1130,
1132-1133 (Emerson); see also People v. Burlington Northern Santa Fe Railroad (2012)
209 Cal.App.4th 1513, 1528 (Burlington).)
        More specifically, the rule seems well accepted in federal courts that the ICCTA
preempts state and local environmental regulation requiring private railroad companies to
                                               37
acquire permits or preclearance as a condition to operating the railroad, as well as
remedies that would prohibit the conduct of railroad business pending compliance with
state or local environmental requirements.
        For example, in Auburn, supra, 154 F.3d 1025, a private rail carrier was before
the STB seeking approval to reacquire a portion of a rail line through the Stampede Pass
in Washington State, and to reopen service on the route. The rail carrier‘s plans included
repairs and improvements on the line. STB environmental staff, following environmental
assessments under the federal environmental law, concluded the project would not have a
significant environmental effect if certain mitigation efforts were undertaken. The STB
approved the project, but the City of Auburn challenged the agency‘s decision, arguing
that the agency erroneously had found state and local environmental review of the project
and the related permitting process to be preempted by the ICCTA. The city sought to
compel the private rail carrier‘s compliance with state and local environmental rules as a
precondition to rail operations, but the court determined that such application of state and
local law was preempted.
        The City of Auburn argued, as do plaintiffs and amici curiae supporting them in
the present case, that the ICCTA preempts solely economic regulation of railroads, but
not a state‘s exercise of traditional police power to protect the environment. The Ninth
Circuit responded that, on the contrary, rail regulation has long been viewed as a subject
of federal concern from which states are excluded, and that prior law, as continued in
effect by the ICCTA, was ―recognized as ‗among the most pervasive and comprehensive
of federal regulatory schemes.‘ ‖ (Auburn, supra, 154 F.3d at p. 1029.) The court
referred to both 49 U.S.C. section 10501(b)‘s statement of exclusive jurisdiction and its
explicit preemption clause displacing state remedies ― ‗with respect to regulation of rail
transportation‘ ‖ (154 F.3d at p. 1030), as well as other language, commented on the
absence of language in the act expressly sparing state environmental regulation from
preemption (Auburn, supra, p. 1031 [―there is no evidence that Congress intended any
                                             38
such state role under the ICCTA to regulate the railroads‖]), and drew parallels with the
preemptive scope of assertedly similar federal laws. (Ibid.)
        In conclusion, the Auburn court observed, ―the distinction between ‗economic‘
and ‗environmental‘ regulation begins to blur. For if local authorities have the ability to
impose ‗environmental‘ permitting regulations on the railroad, such power will in fact
amount to ‗economic regulation‘ if the carrier is prevented from constructing, acquiring,
operating, abandoning, or discontinuing a line. [¶] We believe the congressional intent
to preempt this kind of state and local regulation of rail lines is explicit in the plain
language of the ICCTA and the statutory framework surrounding it. [Citation.] Because
congressional intent is clear, and the preemption of rail activity is a valid exercise of
congressional power under the Commerce Clause, we affirm the STB‘s finding of federal
preemption.‖ (Auburn, supra, 154 F.3d at p. 1031, fn. omitted; see also Susquehanna,
supra, 500 F.3d at p. 252 [rejecting the view that the ICCTA preempts solely economic
regulation]; Florida East Coast Ry., supra, 266 F.3d at p. 1331 [same].)
        In another decision — also involving state attempts to exert control over a
private rail carrier — the court in Green Mountain Railroad Corp. v. Vermont (2d Cir.
2005) 404 F.3d 638 (Green Mountain) held that the ICCTA preempted Vermont‘s efforts
to obtain a declaratory judgment requiring the railroad carrier to go through a state
environmental law process imposing mitigation conditions before the carrier could obtain
a permit to construct a transloading facility on its land. The Second Circuit relied on the
ICCTA‘s language expressly preempting ―remedies . . . with respect to regulation of rail
transportation‖ (49 U.S.C. § 10501(b)), vesting in the STB exclusive jurisdiction over
transportation by rail carriers (ibid.), and defining the term ―transportation‖ broadly to
include facilities related to movement of passengers or freight under section 10102(9).
(Green Mountain, at p. 642.) The state preconstruction permit requirement in that case
was preempted because it ― ‗unduly interfere[s] with interstate commerce by giving the
local body the ability to deny the carrier the right to construct facilities or conduct
                                               39
operations,‘ [citation]; and . . . it can be time-consuming, allowing a local body to delay
construction of railroad facilities almost indefinitely.‖ (Id. at p. 643.) The court also
relied on Auburn, federal district court opinions, and STB decisions for the proposition
that ― ‗state and local permitting or preclearance requirements (including environmental
requirements) are preempted because by their nature they unduly interfere with interstate
commerce.‘ ‖ (Ibid.)
        The Green Mountain court acknowledged, as numerous other cases have, that
state and local governments retain some ―traditional police powers over the development
of railroad property,‖ suggesting that such police powers should be recognized solely ―to
the extent that the regulations protect public health and safety‖ and are defined, settled,
and can be obeyed with certainty and without delay or exercise of discretion. (Green
Mountain, supra, 404 F.3d at p. 643.) ―Electrical, plumbing and fire codes, direct
environmental regulations enacted for the protection of the public health and safety, and
other generally applicable, non-discriminatory regulations and permit requirements
would seem to withstand preemption.‖ (Ibid.; see also Susquehanna, supra, 500 F.3d at
pp. 253-254; see generally cases discussed post, pt. II.E.1.) But the Green Mountain
court found no need to identify the dividing line between permissible and impermissible
state or local regulation, on the ground that preemption was clearly called for in the case
before it. The environmental permitting law gave the local agency the ability to
inordinately delay or deny the rail carrier the right to build. Preemption was required
because ―the railroad is restrained from development until a permit is issued‖ and
issuance of the permit depends on an exercise of state or local agency discretion. (Green
Mountain, supra, 404 F.3d at p. 643.)
       STB decisions are to the same effect, including decisions involving CEQA. In one
case, for example, the STB entered a declaratory order finding that a private rail carrier‘s
proposed construction of a high-speed rail line between California and Nevada would
come within federal environmental provisions, but that ―state permitting and land use
                                             40
requirements that would apply to non-rail projects, such as the California Environmental
Quality Act, will be preempted. [Citation.] But state and local agencies and concerned
citizens will have ample opportunity to participate in the ongoing [environmental impact
statement] process under [federal environmental] and related laws.‖ (DesertXpress
Enterprises, LLC, Petition (STB, June 25, 2007, No. FD 34914) 2007 WL 1833521,
p. * 3.) And the STB has reached similar decisions with respect to the laws of other
states. (See CSX Transportation, Inc., Petition (STB, May 3, 2005, No. FD 34662) 2005
WL 1024490, pp. * 3, * 4 [D.C. law governing transportation of hazardous materials near
the United States Capitol Building was preempted; it would require railroads to obtain a
permit to move rail traffic and would be ―directly covered by the categorical preemption
against state and local permitting processes‖ and any ban on certain cargo ―would
directly conflict with the [STB‘s] regulatory authority over rail operations‖]; Boston &
Maine, supra, 2001 WL 458685, p. * 5 [town‘s preconstruction permit requirement
preempted].)
       In conclusion, there seems little doubt that, in the ordinary regulatory setting in
which a state seeks to regulate a private rail carrier, applying CEQA to condition
permission for that carrier to go forward with railroad operations would be preempted by
the ICCTA.
       E. The Court of Appeal’s conclusion nonetheless is overbroad and incorrect
       The Court of Appeal declined to invoke any presumptions concerning the scope of
ICCTA preemption, and, as noted, declared that ―CEQA is preempted by federal law
when the project to be approved involves railroad operations.‖ The court‘s conclusion
exceeds the proper scope of the ICCTA and violates the preemption principles we have
discussed.
               1. Police powers
       Preliminarily, we note that the quoted language is too broad in that the federal
interest in rail transportation does not entirely sweep away the exercise of the state‘s
                                             41
regulatory police powers when such regulation merely implicates rail transportation.
Even as to powers that are exclusively federal, ―it does not follow that any and all state
regulations touching on [that power] are preempted.‖ (In re Jose C. (2009) 45 Cal.4th
534, 550, italics added [upholding state law connected to immigration matters].) The
federal decisions we have discussed differentiate state laws that are categorically
preempted by the ICCTA, such as environmental preclearance requirements for railroad
operations, from those that merely burden rail transportation and may be preempted as
applied if, under the particular facts, they would interfere unduly with railroad operations
or unreasonably burden interstate commerce. (New Orleans & Gulf Coast, supra, 533
F.3d at p. 332; see also Franks, supra, 593 F.3d at pp. 410, 413; Adrian & Blissfield,
supra, 550 F.3d at pp. 539-540; Emerson, supra, 503 F.3d at pp. 1130, 1132-1133;
Burlington, supra, 209 Cal.App.4th at p. 1528.) The case law supports the conclusion
that the ICCTA does not broadly preempt all historic state police powers over health and
safety or land use matters, to the extent state and local regulation and remedies with
respect to these issues do not discriminate against rail transportation, do not purport to
govern rail transportation directly, and do not prove unreasonably burdensome to rail
transportation. (Emerson, supra, 503 F.3d at pp. 1130, 1132-1133 [state tort claims for
improper disposal of railroad ties not preempted]; see also Franks, supra, 593 F.3d at
p. 410 [the ICCTA does not preempt state law with a remote or incidental effect on rail
transportation; state action enjoining railroad from removing privately owned railroad
crossings not preempted]; PCS Phosphate, supra, 559 F.3d at pp. 218-220 [ICCTA
preemption does not displace ordinary voluntary agreements between private parties];
Adrian & Blissfield, supra, 550 F.3d at pp. 540-541 [state track maintenance statute that
would require the railroad to pay for pedestrian crossings across its tracks was not
preempted; imposing increased costs on railroad is not by itself enough to establish
unreasonable interference]; Susquehanna, supra, 500 F.3d at pp. 252-255 [fines may be
imposed under state law on railroad for environmental hazards at transloading facility;
                                             42
the ICCTA would not preempt, for example, rules fining the railroad for dumping debris
or harmful substances]; Green Mountain, supra, 404 F.3d at p. 643; Florida East Coast
Ry., supra, 266 F.3d at pp. 1328, 1331 [ICCTA preemption does not extend to traditional
police power of zoning and health and safety regulation]; Jones v. Union Pacific Railroad
Co. (2000) 79 Cal.App.4th 1053, 1060 [state nuisance action based on train noise and
fumes not necessarily preempted if the plaintiffs can demonstrate the challenged nuisance
did not further the railroad‘s operations]; In re Vermont Ry. (Vt. 2000) 769 A.2d 648, 655
[zoning conditions imposed not on rail line but on truck traffic and environmental
conditions at railroad‘s salt shed not preempted]; City of Girard v. Youngstown Belt Ry.
Co. (Ohio 2012) 979 N.E.2d 1273, 1283 [eminent domain action not categorically
preempted]; Home of Economy v. Burlington Northern Santa Fe Ry. (N.D. 2005) 694
N.W.2d 840, 845-846 [state injunctive relief requiring reopening of grade crossing not
preempted].) This conclusion is confirmed in the legislative history. (See H.R.Rep. No
104-311, supra, p. 96 [while the ICCTA is intended to preempt state economic
regulation, in other respects ―States retain the police powers reserved by the
Constitution‖].)
       The STB itself has confirmed that the exercise of historic state police powers
concerning environmental matters is not necessarily preempted by the ICCTA. (Auburn
& Kent, supra, 1997 WL 362017, p. * 6] [―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 . . . 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 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‖].)
                                             43
       The STB has recognized, too, that a state law simply requiring, for example, the
development of information concerning a railroad project would not necessarily be
preempted. In Boston & Maine, for example, the STB stated, ―While a locality cannot
require permits prior to construction, . . . a railroad can be required to notify the local
government ‗when it is undertaking an activity for which another entity would require a
permit‘ and to furnish its site plan to the local government‖ (Boston & Maine, supra,
2001 WL 458685, p. * 5), adding that ―[l]ike any citizen or business, railroads have some
responsibility to work with communities to seek ways to address local concerns in a way
that makes sense and protects the public health and safety‖ with pragmatic solutions.
(Id., p. * 7.) ―Examples of solutions that appear . . . reasonable include conditions
requiring railroads to (1) share their plans with the community, when they are
undertaking an activity for which another entity would require a permit, (2) use state or
local best management practices when they construct railroad facilities; (3) implement
appropriate precautionary measures . . . ; (4) provide representatives to meet periodically
with citizen groups or local government entities to seek mutually acceptable ways to
address local concerns; and (5) submit environmental monitoring or testing information
to local government entities for an appropriate period of time after operations begin.‖
(Ibid., fns. omitted.)
       Moreover, there are various instances in which rail operations may also be subject
to regulation under other federal laws that preserve state power to a defined degree.
(See Burlington, supra, 209 Cal.App.4th at pp. 1523-1524, and cases cited [discussing
the extent to which the federal rail safety law may preserve state rail safety provisions
notwithstanding the ICCTA].) In their amici curiae brief, the California Environmental
Protection Agency and the California Natural Resources Agency appropriately counsel
caution and would avoid the Court of Appeal‘s broad formulation quoted above. In their
view, such a statement of the law could undermine viable state environmental
regulations, including those that implement those federal laws that must be harmonized
                                              44
with the ICCTA. They cite authority declaring that ― ‗nothing in [49 U.S.C.] section
10501(b) is intended to interfere with the role of state and local agencies in implementing
Federal environmental statutes,‘ ‖ including the Clean Air Act (42 U.S.C. § 7401 et seq.;
see especially § 7401(a)(3)); the Clean Water Act (33 U.S.C. § 1251 et seq.; see
especially §§ 1370, 2718); and the Safe Drinking Water Act (42 U.S.C. § 300f et seq.).
(See Ass‟n of American Railroads v. South Coast Air Quality Management Dist. (9th Cir.
2010) 622 F.3d 1094, 1097-1098 [harmonizing the ICCTA with other federal statutes and
those state laws that are preserved thereunder]; see also U.S. v. St. Mary‟s Ry. West, LLC
(S.D.Ga. 2013) 989 F.Supp.2d 1357, 1360-1363; Boston & Maine, supra, 2001 WL
458685, p. * 5.) We do not, however, employ or endorse the Court of Appeal‘s unduly
broad formulation, and our opinion should not be read to suggest that the ICCTA
preemption clause is so sweeping as to displace state powers preserved under other
federal provisions.
              2. Self-government
       But what is far more significant to the present case, we recall that the ICCTA
preempts solely ―regulation‖ of rail transportation. (49 U.S.C. § 10501(b).) We now
consider whether a state engages in regulation within the meaning of the ICCTA‘s
preemption language as applied to state law directing a subdivision of the state to develop
the state‘s own freight rail transportation project according to certain environmental
guidelines.
       CEQA embodies a state policy adopted by the Legislature to govern how the state
itself and the state‘s own subdivisions will exercise their responsibilities. (See ante,
pt. II.D.1) When CEQA conditions the issuance of a permit for private development on
CEQA compliance, and thereby restricts the ability of private citizens and companies to
develop their property, this seems plainly regulatory. But CEQA also operates as a form
of self-government when the state or a subdivision of the state is itself the owner of the
property and proposes to develop it. Application of CEQA to the public entity charged
                                             45
with developing state property is not classic regulatory behavior, especially when there is
no encroachment on the regulatory domain of the STB or inconsistency with the ICCTA,
as explained in the next section. Rather, application of CEQA in this context constitutes
self-governance on the part of a sovereign state and at the same time on the part of an
owner. It appears to us extremely unlikely that Congress, in enacting the ICCTA,
intended to preempt a state‘s adoption and use of the tools of self-governance in this
situation, or to leave the state, as owner, without any means of establishing the basic
principles under which it will undertake significant capital expenditures.
                     a. Principles derived from deregulation
       We have seen from the summary of the ICCTA (see ante, pt. II.C), that the law
provides for limited federal regulation in defined spheres. We have also seen that the
ICCTA was intended to complete a deregulatory trend. Statutorily defined policy
minimizes regulatory control and barriers (49 U.S.C. § 10101(2), (7)), and imposes a duty
on the STB to afford regulatory exemptions ―to the maximum extent consistent with [the
ICCTA].‖ (Id., § 10502(a); see also 49 C.F.R. § 1150.31.)
       Deregulation means that once general ICCTA compliance obligations are met, the
railroad owner has a protected domain that is subject neither to federal nor to state
regulation, a freedom to plan, develop, and restore rail service on market principles but
within the framework of modest federal regulation. The text and history of the enactment
indicate that, in the domain that has been deregulated, the owner may carry out its
activities according to its own corporate goals and in response to market forces. This
freedom, of course, is subject to the proviso that the owner‘s actions cannot conflict with
federal regulations. But within the zone of the owner‘s control, the owner has
considerable freedom. Freedom does not imply anarchy — the private owner ordinarily
will have internal corporate rules, policies and bylaws to guide its market-based
decisions. In other words, we may presume that a private conglomerate that owns a
subsidiary that is a railroad company is not required to decide when it is prudent to go
                                             46
forward with the development of a railroad project by, for example, tossing a coin.
Rather, it can make its decisions based on its own internal guidelines, so long as there is
no conflict with federal law.
       But how is the freedom accorded to the private owner by the ICCTA to be given
effect when the state is the owner of a rail line? The ICCTA‘s deregulatory sweep must
protect the zone of autonomy belonging to the state when it is the owner, such that within
the deregulated zone, the state as owner may make its decisions based on its own
guidelines rather than some anarchic absence of rules of decision. And we have already
established that CEQA is an internal guideline governing the processes by which state
agencies may develop or approve projects that may affect the environment. (See ante,
pt. II.D.1.)
       If a private owner has the freedom to adopt guidelines to make decisions in a
deregulated field, we see no indication the ICCTA preemption clause was intended to
deny the same freedom to the state as owner. The ICCTA does not appear to us to be
intended to effect a blanket preemption of state law governing how a state‘s own
subdivision — its subsidiary — will enter and engage in the railroad business, so long as
there is no inconsistency with regulation provided for by the ICCTA.
       In fact, even putting aside broader owner decisions concerning entry into a
railroad market, it appears that the specific project under consideration in the present case
was within an owner‘s sphere of control. We can discern that the track repair element of
the project in the present case was within the owner‘s sphere under the ICCTA because
the STB has chosen not to regulate track repair and renovation on existing lines. (See
Lee‟s Summit, MO v. Surface Transp. Bd. (D.C. Cir. 2000) 231 F.3d 39, 42-43, fn. 3
(Lee‟s Summit); Detroit/Wayne County Port Authority v. I.C.C. (D.C. Cir. 1995) 59 F.3d
1314, 1317 [same, under ICC]; Flynn v. Burlington Northern Santa Fe Corp. (E.D.Wn.
2000) 98 F.Supp.2d 1186, 1190 [although the STB has jurisdiction over rail construction,
it appears it does not in fact regulate refurbishing of existing lines].) And we can discern
                                             47
that decisions about resuming a certain level of service, and particularly about
undertaking environmental review of the impact of resumption of freight service along
the line are within the owner‘s sphere of independent action, because the STB determined
that the level of service along the line in the present case did not cross a threshold that
would require federal environmental review. (See ante, at pp. 9-10; see also Lee‟s
Summit, supra, 231 F.3d 39 [approving STB determination that no environmental
assessment is required under the ICCTA for restored level of service, under a certain
threshold, over existing but unused railroad]; Boston & Maine, supra, 2001 WL 458685,
p. * 4 [railroads do not need STB approval to upgrade or increase traffic on an existing
line]; see also 3 West‘s Fed. Administrative Prac., supra, § 5390, fns. 1 & 13.)
       In the present case, the STB accepted NCRA‘s and NWPCo‘s petitions for
exemption from STB certification requirements, but the STB‘s recognition of each
entity‘s status as a rail carrier did not instruct them how soon they had to complete track
repairs on the shuttered line, what the best method of repair might be, or when,
specifically, they must resume service. Nothing in the exemptions tells NCRA or
NWPCo how to evaluate choices about services or how to decide what methods to
employ for track rehabilitation. These were owner decisions in a deregulated sphere.
       b. The Gregory-Nixon rule
       We are all the more confident of our interpretation of the ICCTA preemption
provision when we return to the presumptions we discussed earlier in introducing
preemption principles. (See ante, pt. II.B.2.) We presume that Congress, in adopting a
preemption provision, does not intend to deprive a state of its sovereign authority over its
internal governance — at least not without a particularly clear statement of intent.
(Raygor v. Regents of Univ. of Minn. (2002) 534 U.S. 533, 543 [―When ‗Congress
intends to alter the ―usual constitutional balance between the States and the Federal
Government,‖ it must make its intention to do so ―unmistakably clear in the language of
the statute‖ ‘ ‖].) This principle cautions against an interpretation of a preemption clause
                                              48
that encroaches on states‘ internal authority over the structure of their governments. (See
Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 388; see also
Printz v. United States (1997) 521 U.S. 898, 928 [―It is an essential attribute of the States‘
retained sovereignty that they remain independent and autonomous within their proper
sphere of authority‖].)
       We agree with plaintiffs that application of CEQA to NCRA‘s decisions in the
deregulated sphere in this case simply constitutes the state‘s governance of its own
subdivision, a matter of self-management that the ICCTA presumptively was not
intended to entirely preempt. We rely on the high court‘s decisions in Gregory, supra,
501 U.S. 452, and Nixon, supra, 541 U.S. 125, in support. Those decisions hold that an
interpretation of a federal statute that would infringe on state sovereignty should not be
adopted absent unmistakably clear language of intent to achieve that result — language
we believe is missing from the ICCTA‘s preemption clause.
       In Gregory, supra, 501 U.S. 452, state judges challenged a state constitutional
provision prescribing a mandatory retirement age, claiming that application of the
provision to them would violate a federal statute barring age discrimination in
employment. The high court disagreed, relying upon certain exclusionary language in the
federal enactment to avoid a conclusion that would constitute an undue incursion on ―the
usual constitutional balance of federal and state powers.‖ (Id. at p. 460.)
       The Supreme Court acknowledged that in the balance between state and federal
sovereign powers, the supremacy clause leaves the federal government with a ―decided
advantage.‖ (Gregory, supra, 501 U.S. at p. 460.) ―As long as it is acting within the
powers granted it under the Constitution, Congress may impose its will on the States.
Congress may legislate in areas traditionally regulated by the States. This is an
extraordinary power in a federalist system. It is a power that we must assume Congress
does not exercise lightly.‖ (Ibid., italics added.)


                                              49
       In the Gregory situation, the high court said, the state constitutional provision
setting qualifications for judges was more than simply a matter traditionally regulated by
states. Rather, it was ―a decision of the most fundamental sort for a sovereign entity.‖
(Gregory, supra, 501 U.S. at p. 460.) ―Through the structure of its government, and the
character of those who exercise government authority, a State defines itself as a
sovereign.‖ (Ibid.) Congressional interference in this sphere ―would upset the usual
constitutional balance of federal and state powers. For this reason, ‗it is incumbent upon
the federal courts to be certain of Congress‘ intent before finding that federal law
overrides‘ this balance. [Citation.] We explained recently: ‗[I]f Congress intends to
alter the ―usual constitutional balance between the States and the Federal Government,‖ it
must make its intention to do so ―unmistakably clear in the language of the statute.‖
[Citations.]‘ ‖ (Id. at pp. 460-461, italics added.)
       In Gregory, the high court explained that the requirement that courts avoid an
interpretation of federal statute that would encroach on state sovereign powers was not a
retreat from the rationale of Garcia v. San Antonio Metro. Transit Auth. (1985) 469 U.S.
528 (Garcia), a decision that relied primarily on the political process to protect state
sovereignty from congressional commerce clause power in the context of the 10th
Amendment. (Gregory, supra, 501 U.S. at p. 464.) Instead, the Gregory opinion said,
the rule of interpretation the court was adopting — the ―unmistakably clear‖ requirement
— actually was consistent with Garcia. ―Indeed, inasmuch as this Court in Garcia has
left primarily to the political process the protection of the States against intrusive
exercises of Congress‘ Commerce Clause powers, we must be absolutely certain that
Congress intended such an exercise. ‗[T]o give the state-displacing weight of federal law
to mere ambiguity would evade the very procedure for lawmaking on which Garcia
relied to protect states‘ interests.‘ [Citation.]‖ (Ibid.)
       In the second leading case on this point, Nixon, supra, 541 U.S. 125, the high
court applied Gregory and concluded that a federal telecommunications enactment did
                                               50
not preempt a state law that barred municipalities from entry into the telecommunications
business. The federal act provided that ―[n]o State or local statute or regulation . . . may
prohibit or have the effect of prohibiting the ability of any entity to provide any interstate
or intrastate telecommunications service.‖ (47 U.S.C. § 253(a), italics added.) Certain
municipalities claimed they fell within the designation ―any entity‖ and that the federal
law preempted the state law barring municipalities from entering the telecommunications
business. The United States Supreme Court found the federal statute‘s reference to ―any
entity‖ ambiguous, however, and certainly not ―unmistakably clear‖ enough to
encompass public entities. To better understand congressional intent, the court
considered how the statute would work in practice if applied to prevent the state from
barring municipalities from entering the telecommunications market. ―We think that the
strange and indeterminate results of using federal preemption to free public entities from
state or local limitations is the key to understanding that Congress used ‗any entity‘ with
a limited reference to any private entity when it cast the preemption net.‖ (Nixon, supra,
541 U.S. at p. 133.)
       The Supreme Court explained that regulatory preemption usually works by
―preempting state regulation in some precinct of economic conduct carried on by a
private person or corporation,‖ thereby ―simply leav[ing] the private party free to do
anything it chooses consistent with the prevailing federal law. . . . On the subject
covered, state law just drops out.‖ (Nixon, supra, 541 U.S. at p. 133.) Under normal
preemption of state regulation of economic activity, to give an example, if state
regulation of cigarette advertising is preempted ―a cigarette seller is left free from
advertising restrictions imposed by a State, which is left without the power to control on
that matter.‖ (Ibid.)
       According to the high court, preemption of a state law banning municipalities
from entering the telecommunications business would yield no such simple result. The
municipalities had argued in favor of preempting the state‘s ban on their entry into the
                                              51
market, but even if the ban were preempted, the Supreme Court said, the local entities
would still need a state law authorizing them to enter the market in the first place.
(Nixon, supra, 541 U.S. at pp. 134-135.) And preemption would still leave the local
entities at the mercy of the state over the crucial matter of funding. (Id. at pp. 134, 136.)
Unlike with economic regulation of private actors, governmental self-regulation is an
expression of governmental authority and operates so differently that the high court
thought it unlikely Congress intended preemption to reach so far. (Id. at p. 134.)
       The Supreme Court gave several examples of the unfortunate results of the
municipalities‘ position — unlikely to have been intended by Congress — including the
memorable ―one-way ratchet.‖ In the hypothetical, a state has at one time authorized
municipalities to provide water, electricity and telecommunications services. Later the
state statute is amended so that only water services are authorized. If the law removing
authority to provide telecommunications services were preempted, ―[t]he result . . . would
be the federal creation of a one-way ratchet. A State or municipality could give the
power, but it could not take it away later. Private counterparts could come and go from
the market at will . . . ; [but] governmental providers could never leave . . . , for the law
expressing the government‘s decision to get out would be preempted.‖ (Nixon, supra,
541 U.S. at p. 137.)
       Thus, according to the Supreme Court, the federal provision ―would not work like
a normal preemptive statute if it applied to a governmental unit. It would often
accomplish nothing, it would treat States differently depending on the formal structures
of their laws authorizing municipalities to function, and it would hold out no promise of a
national consistency. We think it farfetched that Congress meant [the provision] to start
down such a road in the absence of any clearer signal . . . .‖ (Nixon, supra, 541 U.S. at
p. 138.)
       The presumption described in Nixon and Gregory supports the view that CEQA is
not preempted in this case. In fact, the Nixon decision is peculiarly apt here. The court
                                              52
concluded that preemption, if recognized in such a situation, would work ―by interposing
federal authority between a State and its municipal subdivisions, which our precedents
teach, ‗are created as convenient agencies for exercising such of the governmental
powers of the State as may be entrusted to them in its absolute discretion.‘ [Citations.]
Hence the need to invoke our working assumption that federal legislation threatening to
trench on the States‟ arrangements for conducting their own governments should be
treated with great skepticism, and read in a way that preserves a State‟s chosen
disposition of its own power, in the absence of the plain statement Gregory requires.‖
(Nixon, supra, 541 U.S. at p. 140, italics added; see also Gillie, supra, ___ U.S. ___, ___
[136 S.Ct. at p. 1602] [warning against ―constru[ing] federal law in a manner that
interferes with ‗States‘ arrangements for conducting their own governments‘ ‖].)
       We may presume that the term ―regulation of rail transportation‖ found in the
ICCTA preemption provision was not intended to entirely sweep away a state‘s ability to
engage in self-government over its own subsidiaries — specifically, subsidiary entities
that are charged by the state with developing or reestablishing a rail line. Just as in
Nixon, the preemption claimed by NCRA here would not work like normal preemption of
a state‘s economic regulation in the private marketplace, but rather would intrude on state
sovereignty. Preempting regulation of economic activity by a private person would, as
the Nixon court said, ―simply leave[] the private party free to do anything it chooses
consistent with the prevailing federal law.‖ (Nixon, supra, 541 U.S. at p. 133.) In other
words, the private party could freely engage in self-governance as long as there was no
violation of federal law. But the impact of preemption on the state as owner of a rail line
would be quite different — it would leave the state without the ability to achieve self-
governance through the medium normally and constitutionally available to states — the
adoption of state law of general application. Without plainer language to that effect, we
do not believe Congress intended to displace the exercise of a state‘s ordinary power of


                                             53
self-governance when the state does not propose to act in contravention of the dictates of
the ICCTA.
       Crucially, what is at stake here is the state trying to govern itself — to engage in
―decision[s] of the most fundamental sort for a sovereign entity.‖ (Gregory, supra, 501
U.S. at p. 460.) Unlike with economic regulation of private actors, ―when a government
regulates itself (or the subdivision through which it acts) there is no clear distinction
between the regulator and the entity regulated. Legal limits on what may be done by the
government itself (including its subdivisions) will often be indistinguishable from choices
that express what the government wishes to do with the authority and resources it can
command. That is why preempting state or local governmental self-regulation (or
regulation of political inferiors) would work so differently from preempting regulation of
private players that we think it highly unlikely that Congress intended to set off on such
uncertain adventures.‖ (Nixon, supra, 541 U.S. at p. 134, italics added.)
       As in Nixon, preempting the state‘s ability to dictate how its own subdivisions will
handle environmental concerns caused by the state‘s own railroad business would operate
so entirely differently from the usual regulatory scenario involving the private
marketplace that we do not believe this was what Congress intended. Preempting the
state‘s ability, through its laws, to adopt general precepts governing its own development
schemes in the sphere in which private owners would have freedom of action would leave
the state, as owner, without the tools necessary to govern its own subdivision. Such
preemption could deprive the state of the ability to make decisions that would carry out
the goals the state embraced concerning development projects, including undertaking
environmental mitigation or deciding not to undertake a project at all because of its
environmental hazards. State law, specifically CEQA, would not be regulating as applied
to NCRA in any commonly understood interpretation of the term, but rather would be an
expression of state governmental decisions about the disposition of state authority and
resources. (See Nixon, supra, 541 U.S. at p. 134.) We see no unmistakably clear
                                              54
indication in the language of 49 U.S.C. section 10501(b) that would direct us to the
surprising conclusion that a state must operate without its usual tools and guidelines
when it becomes an owner-participant in the railroad industry.
       Preemption of CEQA as applied to NCRA also would mean that the state can start
a railroad and fund it, but cannot control how the work is done on the line even as to
matters a private owner could control. Indeed, if state law of general application does not
apply to NCRA‘s decisions concerning the state‘s railroad project it is difficult to know
under what rules NCRA should make its decisions. NCRA is not an independent
corporation or a private company, but an arm of the state, created and funded by the state
to carry out goals established by the Legislature. What rule of decision — with respect to
matters not directly regulated by the STB — other than whim would guide NCRA‘s
decisions, if not state law? The state would be committed to some version of the one-
way ratchet — able to enter the rail business, but unable to require anything of the
subordinate agency it set up to carry out the state‘s rail initiative. We presume Congress
did not intend such an absurd result or one so intrusive on state powers of self-
governance in its own forays into the market in the absence of unmistakably clear
language.
       The availability of citizen enforcement mechanisms does not change our view that
CEQA operates as a system of self-governance as applied to NCRA in this case. What is
at stake here is whether the application of state law is regulatory within the meaning of 49
U.S.C. section 10501(b). CEQA actions in this case do not become regulatory simply
because they are brought by citizens.
       When it created NCRA, the Legislature did not afford it a CEQA exemption,
thereby committing NCRA to follow CEQA. CEQA‘s substantive provisions and
citizen-suit provisions are intertwined. CEQA requires government entities to gather the
information the entities need to make decisions about pursuing their own development
projects; CEQA requires that entities engaged in considering a project with
                                             55
environmental impacts make findings that are supported by substantial evidence; and
CEQA requires that entities avoid abuses of discretion when weighing mitigation,
considering project alternatives and feasibility, and in approving projects. The state, with
these rules about the process of decisionmaking for its subdivisions, engages in self-
government. And the Legislature has seen fit to permit these rules of self-governance to
be enforced by citizen suits. Thus citizen actions are a method of enforcement chosen by
the state itself, again as a matter of self-governance.
       It seems evident that the state‘s interest in self-governance extends to designing a
system of enforcement. It is not unusual for the state to authorize citizen enforcement of
state-adopted rules governing how the state and its subdivisions will conduct the public‘s
business. Indeed, citizen actions may be authorized precisely because there may be
particular procedures with which a subordinate public agency is reluctant to comply.
(See Gov. Code, § 11130 [action to enforce state-entity open meeting law]; id., § 54960,
subd. (a) [action to enforce local-entity open meeting law]; see also Code Civ. Proc.,
§ 1094.5 [administrative mandamus].)
       We acknowledge that CEQA actions might cross the line into preempted
regulation if the review process imposes unreasonable burdens outside the particular
market in which the state is the owner and developer of a railroad enterprise. But in the
context of addressing the competing federal and state interests in governing state-owned
rail lines that are before us in this case, such a line is not crossed by recognizing CEQA
causes of action brought against NCRA to enforce environmental rules of decision that
the state has imposed on itself for its own development projects.
       We by no means posit that the ICCTA does not govern state-owned rail lines. It
appears undisputed that state-owned rail lines, like private ones, must comply with the
ICCTA‘s provisions and with STB regulation and that state regulation of rail carriers is




                                              56
preempted even when the state owns the line.7 But it does not appear unmistakably clear
that in adopting the preemption provision of the ICCTA, Congress intended that state

7       A ruling that the ICCTA is inapplicable to state-owned railroads would be
inconsistent with the plain purpose of the ICCTA and its predecessors to ensure a
uniform national system of rail service subject to national — but limited — federal
regulation. We have seen that the ICCTA goes beyond its predecessor in this respect,
even preempting former limited state regulation of purely intrastate lines. Indeed it
would be impossible to have a unified national rail system if a state could march to a
different drummer when it owned the railroad. In view of the national system
contemplated by the ICCTA, it would be absurd to suppose that a state could require a
state-owned rail line that connects with interstate tracks to, for example, abandon
essential connecting lines without respect to STB requirements, shrug off its common
carrier obligations without STB approval, charge discriminatory rates notwithstanding
ICCTA rate restrictions, or engage in a sale that would be disapproved by the STB.
        There is authority demonstrating as much. State-owned rail lines and entities have
been held subject to the common carrier obligations of the predecessor statute, the
Interstate Commerce Act. (City of New Orleans v. Texas & Pac. Ry. Co. (5th Cir. 1952)
195 F.2d 887, 889 [―So long as it engages in interstate and foreign commerce [the
publicly owned line] is subject to the federal law and the Interstate Commerce
Commission, like any other railroad‖]; City of New Orleans Public Belt Ry. Comm. v.
Southern Scrap Material Co. (E.D.La. 1980) 491 F.Supp. 46, 48; see also International
Long. Ass‟n, AFL-CIO v. North Carolina Ports Auth. (4th Cir. 1972) 463 F.2d 1, 3-4.)
        More generally (albeit in the context of a claim under the Federal Employers‘
Liability Act), the high court has said it would not ―throw into doubt‖ prior decisions
―holding that the entire federal scheme of railroad regulation applies to state-owned
railroads.‖ (Hilton v. South Carolina Public Railways Comm‟n (1991) 502 U.S. 197,
203, italics added; see also Transportation Union v. Long Island R. Co. (1982) 455 U.S.
678, 685, 687-689 [applying National League of Cities v. Usery (1976) 426 U.S. 833
(which later was overruled in Garcia, supra, 469 U.S. 528), and concluding that because
state operation of railroads is not an integral part of traditional state activities, there was
no 10th Amend. violation in applying federal railroad labor law to a state-owned
railroad]; California v. Taylor (1957) 353 U.S. 553, 567 [federal Railway Labor Act was
intended ―to apply to any common carrier by railroad engaged in interstate transportation,
whether or not owned or operated by a State‖]; Int. Com. Comm. v. Detroit & Railway
Co. (1897) 167 U.S. 633, 642 [state railroad is a common carrier subject to the Interstate
Commerce Act and its prohibition on discriminatory rates].)
        The STB certainly asserts and exercises jurisdiction over state and municipally
owned rail lines — as it has done in this case. The STB has asserted that authority in a
case involving another public project in California. (See California High-Speed Rail
                                                                 (Footnote continued on next page)

                                              57
self-governance extending over how its own subdivisions would enter a business and
make decisions a private owner could decide how to make for itself would be considered
preempted regulation of rail transportation within the meaning of the preemption clause.
        The Court of Appeal rejected the Nixon analysis on the ground that whereas in
Nixon there was ambiguity in the statutory phrase ―any entity‖ (Nixon, supra, 541 U.S. at
p. 133), leaving room for the presumption that Congress would not interfere with state
sovereignty to the extent of displacing state authority over municipalities unless it made
its purpose unmistakably clear, in the case of the ICCTA, there is no ambiguity.
According to the Court of Appeal, the ICCTA preempts all laws that have the effect of
managing or governing rail transportation, a definition the court believed encompassed
CEQA. The Court of Appeal maintained that Congress has authority under the
commerce clause to regulate rail transportation, and that ―[i]f Congress has the authority
under the [c]ommerce [c]lause to act, that action does not invade ‗the province of state
sovereignty preserved by the Tenth Amendment. [Citations.] The ICCTA‘s preemption
of CEQA as a preclearance requirement to railroad operations does not violate the Tenth
Amendment.‖

(Footnote continued from previous page)

Authority, Petition (STB, Dec. 12, 2014, No. FD 35861) 2014 WL 7149612, p. * 11.)
Prior authority is in accord. (North San Diego, supra, 2002 WL 1924265, pp. * 5, * 6
[public-agency-owned rail carrier could not be required to obtain a coastal development
permit under the California Coastal Act or to prepare an environmental report prior to
construction of a passing track]; see also Alaska R. Corp., Exemption (STB, Jan. 5, 2010,
No. FD 34658) 2010 WL 24954, p. * 1; California High-Speed Rail Authority,
Exemption, supra, 2013 WL 3053064; South Carolina Division of Public Railways d/b/a
Palmetto Railways, Exemption (STB, Sept. 10, 2013, No. FD 35762) 2013 WL 4879234;
State of North Carolina, Exemption (STB, Apr. 15, 1998, No. FD 33573) 1998 WL
191270; Morristown & Erie Railway, Inc., Certificate (STB, June 22, 2004, No. FD
34054) 2004 WL 1387314, pp. * 3, * 4 [discussing STB regulations implementing NEPA
in context of railroad owned by the state and operated by a county].)



                                            58
       We believe this analysis fails to grapple with the status of the state as the owner of
the railroad line, and the related question of the freedom of action afforded to owners
under the deregulatory aspect of the ICCTA. It also fails to abide by the presumption
established in Nixon and Gregory — that federal preemption does not trench on essential
state sovereignty and self-governance without unmistakably clear language to that effect
— and mistakenly suggests that just because Congress has power to assert preemptive
control over an area of commerce, the existence of such power means that it necessarily
has preempted control even as to areas of traditional state sovereignty. We believe the
analysis must be more nuanced, and that the appropriate presumptions must be invoked.
Where owners are free from regulation, this freedom belongs to both public and private
owners. When there is state ownership, we do not believe it constitutes regulation when
a state applies state law to govern how its own state subsidiary will act within the area
free of STB and ICCTA regulation.
       We acknowledge that the STB apparently applies the same sweeping preemption
to state and local environmental rules even when the rail carrier is publicly owned. (See
North San Diego, supra, 2002 WL 1924265, pp. * 5, * 6 [publicly owned rail carrier
could not be required to obtain a coastal development permit under the California Coastal
Act or to prepare an environmental report prior to construction of a passing track].) And
in a divided opinion now on appeal, the STB concluded specifically that the ICCTA
preempts any application of CEQA to what appears to be a publicly owned high-speed
rail project in California. (California High-Speed Rail Authority, Petition, supra, 2014
WL 7149612, p. * 7.) Although the California High-Speed Rail Authority in that case
had petitioned only for a declaration that the ICCTA preempts injunctive relief under
CEQA that could prevent or delay construction of the line, and though the authority
observed that it did not seek preemption of other remedies such as an order requiring a
revised EIR or additional mitigation so long as there would be no work stoppage, the
STB majority filed a much broader decision. It concluded that CEQA is ―categorically
                                             59
preempted‖ because its application to new rail construction would impinge on the
―[STB]‘s exclusive jurisdiction over rail transportation‖ and constitute an attempt ―to
regulate a project that is directly regulated by the [STB].‖ (Ibid.) The STB majority held
that CEQA is, in fact, an environmental permitting or preclearance provision that should
be entirely preempted as to railroads, relying largely on Auburn, supra, 154 F.3d 1025,
and the Court of Appeal decision in the present case. A dissent to the STB‘s decision
objected that it was unnecessarily broad and that the authority should be held to its prior
voluntary commitments to follow CEQA. (California High-Speed Rail Authority,
Petition, supra, at p. * 13 (dis. statement of Begeman, Comr.).)8 But these decisions on
the part of the STB did not consider the deregulatory aspect of the ICCTA and the
different way in which deregulation affects public and private rail lines. We are not
bound to follow them.
                     c. The market participant doctrine
       There is another interpretive presumption, namely the market participant doctrine,
that plaintiffs assert would lead to a conclusion that there should be no preemption of
CEQA here. The doctrine acknowledges that in some circumstances, states may be
acting not as regulators of others, but as participants in a marketplace who themselves
need to deal with private parties to obtain services or products. In this proprietary
capacity they generally should have the same freedom as private actors in the market, just
as they must ordinarily carry the same burdens. (Reeves, Inc. v. Stake (1980) 447 U.S.
429, 439 (Reeves) [state, which owned and operated a cement plant, was permitted to sell
preferentially to in-state private purchasers; ―state proprietary activities may be, and often

8      A petition for reconsideration and request for stay was denied on the ground that a
majority of the STB could not agree on its disposition. (California High-Speed Rail
Authority, Petition (STB, May 4, 2015, No. FD 35861) 2015 WL 2070594.) The matter
is pending on appeal in the United States Court of Appeals for the Ninth Circuit.



                                             60
are, burdened with the same restrictions imposed on private market participants.
Evenhandedness suggests that, when acting as proprietors, States should similarly share
existing freedoms from federal constraints, including the inherent limits of the Commerce
Clause‖ (fn. omitted)].)
       Whereas the commerce clause of the federal Constitution implies a limitation on
state authority to interfere with interstate commerce, ―either through prohibition or
through burdensome regulation‖ (Hughes v. Alexandria Scrap Corp. (1976) 426 U.S.
794, 806), at the same time the Supreme Court has recognized the importance of state
sovereignty in the market sphere as well. The high court has cautioned that
notwithstanding the scope of Congress‘s authority under the commerce clause,
―[r]estraint in this area is . . . counseled by considerations of state sovereignty, the role of
each State ‗ ―as guardian and trustee for its people,‖ ‘ [citation], and ‗the long recognized
right of trader or manufacturer, engaged in an entirely private business, freely to exercise
his own independent discretion as to parties with whom he will deal.‘ [Citation.]‖
(Reeves, supra, 447 U.S. at pp. 438-439, fns. omitted.)
       The high court has cautioned that whereas the market participant doctrine
acknowledges that a state can influence a discrete area of economic activity in which it
participates, the doctrine does not afford ―carte blanche to impose any conditions that the
State has the economic power to dictate, and does not validate any requirement merely
because the State imposes it upon someone with whom it is in contractual privity.
[Citation.] [¶] The limit of the market-participant doctrine must be that it allows a State
to impose burdens on commerce within the market in which it is a participant, but allows
it to go no further. The State may not impose conditions, whether by statute, regulation,
or contract, that have a substantial regulatory effect outside of that particular market.‖
South-Central Timber Dev. v. Wunnicke (1984) 467 U.S. 82, 97-98.)
       Here, of course, we do not simply confront the inherent or implied limits imposed
by the commerce clause on state regulation, but an express preemption provision. The
                                               61
market participant doctrine applies, however, in both situations. And when there is a
preemptive federal statute, a presumption as to its proper interpretation arises from the
market participant doctrine.
       A congressional preemption clause ordinarily displaces regulatory action on the
part of states, but the high court has held that it is unlikely that Congress also meant to
reach the proprietary conduct of the states. (Boston Harbor, supra, 507 U.S. at pp. 231-
232; Wisconsin Dept. of Industry v. Gould Inc. (1986) 475 U.S 282, 290 (Gould).) At the
same time, reviewing courts must remain aware of the special power of the state in the
marketplace. The high court in Gould, supra, 475 U.S. 282, for example, acknowledged
that even state purchasing decisions involving private contractors may in some
circumstances have such an impact in the marketplace as to be regulatory. (Id. at p. 290.)
Thus in Gould, a Wisconsin statute under which state purchasing agents were barred from
expending state funds to contract with private employers who had repeatedly violated the
National Labor Relations Act (NLRA) was essentially regulatory and therefore was
preempted under the NLRA. The state law imposed a ―supplemental sanction‖ on NLRA
violations by private employers (id. at p. 288), and was inconsistent with congressional
intent to prevent states from ―providing their own regulatory or judicial remedies for
conduct prohibited or arguably prohibited by the Act.‖ (Id. at p. 286.)
       But even in the context of the NLRA and state contracts with private actors, the
high court has confirmed the vitality of the market participant doctrine. Under certain
circumstances involving a state as owner of property or purchaser of goods or services,
the high court has acknowledged that the public entity may be permitted to ―manage its
own property when it pursues its purely proprietary interests . . . where analogous private
conduct would be permitted‖ and is not seen thereby to be engaging in regulatory
conduct. (Boston Harbor, supra, 507 U.S. at p. 231, italics added.) ―When a State owns
and manages property, for example, it must interact with private participants in the


                                              62
marketplace. In so doing, the State is not subject to pre-emption by the NLRA, because
pre-emption doctrines apply only to State regulation.‖ (Id. at p. 227.)
       The Supreme Court in Boston Harbor distinguished Gould, supra, 475 U.S. 282,
explaining that the Gould rule addressed a state agency‘s attempt, through limitations on
state expenditures, to compel NLRA compliance on the part of a private employer — a
matter ―unrelated to the employer‘s performance of contractual obligations to the State‖
but rather demonstrating an intent to deter NLRA violations. (Boston Harbor, supra, 507
U.S. at p. 229.)
       The high court in Boston Harbor also pointed out that it was merely permitting the
public entity to act in the same way any other proprietor could act. The disputed
contract in that case was between public and private entities and involved a development
project. The contract‘s prehire provisions, challenged as regulatory, would actually be
permitted under the NLRA in private contracts in the construction industry, and the same
freedom was contemplated when the public entity acted as a proprietor and market
participant. (Boston Harbor, supra, 507 U.S. at p. 231.) The court said: ―To the extent
that a private purchaser may choose a contractor based upon that contractor‘s willingness
to enter into a prehire agreement, a public entity as purchaser should be permitted to do
the same.‖ (Ibid., italics omitted.)
       Boston Harbor reflects a situation in which the state can interact in the
marketplace in the same way as a private actor without being considered as engaging in
preempted regulatory conduct. By contrast, when the state engages with private persons
in the marketplace with tools that are not available to private actors, the high court has
viewed this as regulatory, and therefore the state‘s action will be preempted. (American
Trucking, supra, ___ U.S. ___, ___ [133 S.Ct. at p. 2103] [federal law preempts a
municipal entity‘s requirement of its private lessees that they impose certain contractual
terms on private parties on pain of potential misdemeanor prosecution].)


                                             63
       Unlike plaintiffs, we do not find the market participant doctrine fully on point,
because it ordinarily is used to analyze preemption when a state interacts with private
parties as a participant in a private marketplace for goods, labor, or services. When a
state engages in the private marketplace on terms available to any other proprietor, it may
be presumed that such conduct is not regulation in the sense ordinarily meant by federal
preemption provisions. Here, by contrast, our focus is not on the state‘s interactions with
the private railroad marketplace, or even on its interactions with its private lessee,
NWPCo, but on the state‘s ability to govern the state‘s own subsidiary, NCRA — the
governmental subdivision of the state through which the state proposes to enter into and
engage with the railroad marketplace.
       Nevertheless, elements of the case law concerning the doctrine are instructive.
One useful element is related to our earlier discussion of Nixon, supra, 541 U.S. 125, and
Gregory, supra, 501 U.S. 452, in that, similarly, it is based in part on the presumption
that Congress will not interfere lightly with state sovereignty. Furthermore, the market
participant doctrine also instructs, in part, that because states operating in a private
marketplace are subject to the same burdens imposed by Congress on private proprietors,
courts will presume that Congress would afford states, as proprietors, the same freedoms
as private proprietors. These ideas are useful because in a sense, application of CEQA is
not solely a matter of self-governance by the state. CEQA can be seen as an expression
of how the state, as proprietor, directs that a state enterprise will be run — an expression
that can be analogized to private corporate bylaws and guidelines governing corporate
subsidiaries. To the extent a private corporate parent would have a zone of freedom
under the ICCTA to govern how its subsidiaries will engage in the railroad business —
including the freedom to direct them to undertake environmental fact finding as a
condition of approving or going forward with their projects — the state presumably has
the same sphere of freedom of action.


                                              64
       To make this point more concrete, we provide a hypothetical example. A private
corporate conglomerate might require its subsidiaries, including its rail subsidiary, to
perform environmental studies to discover what climate impacts a proposed project may
have, to identify liabilities in the event of the adoption of a federal carbon tax or, on the
asset side of the ledger, the availability of greenhouse gas credits for a project with
climate benefits in the event of the establishment of a broad cap-and-trade system. A
corporate conglomerate could make the results of environmental study one element of the
cost-benefit analysis it requires of its subsidiary or an element of its own retained control
over the subsidiary. To ensure accomplishment of its own sustainability goals, or even as
a matter of public relations, a corporation, as part of its internal governance policies or its
bylaws, could adopt a process that permitted shareholder or stakeholder challenges to its
handling of the environmental review process. In our view, the application of CEQA to
NCRA proceedings and decisions would perform a similar decisionmaking function and
afford similar enforcement mechanisms. We see little reason to suppose that when
Congress forbade states to regulate rail transportation, it meant to prevent states, as
owners of railroad lines, to have the freedom of action we believe would be retained by
private businesses under the ICCTA.9


9       The Court of Appeal in the present case rejected plaintiffs‘ reliance on the market
participant doctrine because petitioner‘s suit to enforce CEQA was not itself a proprietary
activity in the marketplace: ―NCRA, a political subdivision of the state, undertook a
project to reopen the Russian River Division of the line. As part of that project, it
prepared an EIR, which is now challenged by [plaintiffs] as inadequate. Even if the
project to reopen the line is viewed as proprietary and the initial decision to prepare the
EIR a component of this ‗proprietary‘ action, a writ proceeding by a private citizen‘s
group challenging the adequacy of the review under CEQA is not a part of this
proprietary action.‖ We do not believe that the market participant doctrine applies solely
to enforcement actions that are themselves literally proprietary or commercial conduct in
the market. This was certainly not the case in Boston Harbor, supra, 507 U.S. 218, for
example. Rather, what is critical is whether the state is engaged in proprietary or
                                                                  (Footnote continued on next page)

                                              65
        F. NWPCo
        Despite our conclusion concerning NCRA, we agree with the Court of Appeal that
CEQA causes of action cannot be the basis for an injunctive order directed specifically at
NWPCo to halt NWPCo‘s freight operations — a form of relief that falls within
plaintiffs‘ prayer. Such an application of state law would be tantamount to the operation
of state environmental preclearance rules that the Auburn court and others have agreed
cannot be used to halt railroad operations pending compliance. (See, e.g., Auburn, supra,
154 F.3d 1025.) The Gregory-Nixon presumption regarding congressional intent would
not be fully applicable, either, since the order directly restraining NWPCo from operating
freight service pending CEQA compliance would not involve simply the state‘s
autonomy and control over its subdivisions, but would constitute use of state law to
restrict operations by a private rail carrier — a classic example of state regulation.


(Footnote continued from previous page)

essentially regulatory conduct, with special attention to whether the same enforcement
tools would be available to private parties.
        The Court of Appeal also implied that the doctrine can be applied solely as a
shield by a state seeking to avoid preemption, and not as a sword for citizens seeking to
enforce state law. As our discussion above indicates, however, the market participant
doctrine is an aspect of a preemption question, which is a question of law. (See Farm
Raised Salmon Cases (2008) 42 Cal.4th 1077, 1089, fn. 10 [preemption as question of
law].) Application of the market participant doctrine turns on congressional intent
underlying the preemption clause under review, and on whether the state is involved in
essentially regulatory behavior. Because these questions of law simply lead a court to the
proper interpretation of a federal statute, we are not persuaded the market participant
doctrine cannot be raised simply because plaintiffs are not a state or local entity wishing
to shield assertedly proprietary activity from federal preemption. Indeed, the Court of
Appeal‘s interpretation would lead to the anomaly that the scope of the federal
enactment‘s preemption would turn on the litigation strategy of individual states. It
seems unlikely that the ICCTA‘s purpose contemplated preempting local law in one state
but not preempting an identical statute in another state, based merely on the state‘s
appearance or nonappearance in litigation.



                                             66
       Nor would the market participant doctrine apply to prevent preemption. Even if
the state is a participant in the railroad market, when the state uses enforcement
mechanisms that would not be available to a private party, this ordinarily constitutes
regulation. The mechanism sought to be used here — public entity proceedings on a
project pursuant to CEQA — is not a mechanism that private market actors could create
and require of others. That is, although a private actor, by contract, could condition
performance on compliance with specified environmental norms, that private actor would
be unable, even by contract, to create and implement a system of government
proceedings. Only the government can create and administer such a system. In this way,
application of CEQA to enjoin NWPCo from operating rail service pending NCRA‘s
CEQA compliance would run afoul of the teaching of American Trucking. This, like the
possibility of criminal sanctions in that case, is not a tool ―that the owner of an ordinary
commercial enterprise could mimic.‖ (American Trucking, supra, ___ U.S. at p. ___
[133 S.Ct. at p. 2103].) Nor does plaintiffs‘ reliance on the Engine Manufacturers
decision assist them, since that decision permitted state control over the state‘s own
internal purchasing decisions, but did not extend to permitting regulation of private third
parties. (Engine Manufacturers, supra, 498 F.3d at pp. 1045-1046, 1048.) Thus it
appears that plaintiffs cannot rely upon CEQA as a basis for an injunction directed at
NWPCo to halt its operations. Whether NWPCo would be able to carry on with service
despite the application of CEQA to NCRA is a question that is beyond the scope of this
case. We also agree with the Court of Appeal that in the current litigation, plaintiffs did
not preserve any contract claim.
       At the same time, the conclusion that a CEQA cause of action cannot be the basis
for an order halting NWPCo‘s operations does not require us to conclude CEQA is also
preempted as applied to NCRA in this case. Even if CEQA is preempted as applied to
halt NWPCo‘s freight operations because in that context CEQA is essentially regulatory,
the application of CEQA, as a matter of self-governance, to the state‘s own railroad
                                             67
project is not. This result is evident as a matter of legislative intent, since CEQA contains
a severability clause that is written in broad terms: ―If any provision of this division or
the application thereof to any person or circumstances is held invalid, such invalidity
shall not affect other provisions or applications of this division which can be given effect
without the invalid provision or application thereof, and to this end the provisions of this
division are severable.‖ (Pub. Resources Code, § 21173, italics added; cf. NFIB v.
Sebelius (2012) 567 U.S. 519 [giving effect to a similarly worded severability
provision].) The severability clause establishes a presumption that the Legislature
intended that the invalid (here, the preempted) applications be severed from the valid
(nonpreempted) ones. Insofar as CEQA governs projects ―directly undertaken‖ by public
entities (Pub. Resources Code, § 21065, subd. (a)), its provisions appear to be capable of
operating independently. And to sever the preempted applications of CEQA from the
nonpreempted applications is consistent with our repeated recognition that ―CEQA is to
be interpreted ‗to afford the fullest possible protection to the environment within the
reasonable scope of the statutory language.‘ ‖ (Mountain Lion Foundation, supra, 16
Cal.4th at p. 112.)
       Applying CEQA and its remedies to NCRA (but not to NWPCo) may have some
impact on the private party, but this is merely derivative of the state‘s efforts at self-
governance in this marketplace. We see the two entities as distinct for the purposes of
preemption, at least in circumstances where the ICCTA leaves a regulatory hole which
owners are free to exploit to their own advantage.




                                              68
                                     III. Conclusion
       The ICCTA preempts state regulation of rail transportation. In this case, the
application of CEQA to NCRA would not be inconsistent with the ICCTA and its
preemption clause. This is both because we presume Congress does not intend to disrupt
state self-governance without clear language to that effect, and because the ICCTA leaves
a relevant zone of freedom of action for owners that the state, as owner, can elect to act in
through CEQA. We conclude that the judgment of the Court of Appeal should be
reversed and the matter remanded for further proceedings consistent with this opinion.


                                                               CANTIL-SAKAUYE, C. J.



WE CONCUR:

WERDEGAR, J.
CHIN, J.
LIU, J.
CUÉLLAR, J.
KRUGER, J.




                                             69
                  CONCURRING OPINION BY KRUGER, J.

       I agree with the majority that, in the context of the activities of a public rail
authority, the California Environmental Quality Act (CEQA; Pub. Resources
Code, § 21000 et seq.) is not categorically preempted as a ―regulation of rail
transportation‖ within the meaning of the ICC Termination Act of 1995 (ICCTA;
49 U.S.C. § 10501(b)). As it applies in this context, CEQA represents a set of
obligations the State of California has voluntarily assumed in conducting its own
operations, and it functions as a rule of internal state governance that the North
Coast Railroad Authority — much as every other California public agency —
must follow with respect to all projects it undertakes. (See, e.g., Pub. Resources
Code, §§ 21001.1, 21065, subd. (a), 21150, 21151.) I agree with the majority that
the Congress that enacted the ICCTA could not have intended to broadly displace
state laws governing how states and their subdivisions carry out their own
projects. (See maj. opn., ante, at pp. 45–65.)
       This decision clears the way for the courts below to begin considering the
merits of plaintiffs‘ CEQA claims, which the courts had previously found to be
preempted by the ICCTA as a categorical matter. That is not to say that the
ICCTA is irrelevant to the proceedings on remand, however. The parties and
amici curiae have argued that particular CEQA remedies might be preempted by
the ICCTA to the extent the remedy is one that unreasonably interferes with the
jurisdiction of the Surface Transportation Board, which has authorized service


                                           1
over the rail line in question. (Cf., e.g., Wedemeyer v. CSX Transportation, Inc.
(7th Cir. 2017) 850 F.3d 889, 895 [a remedy may be preempted ― ‗as applied‘ . . .
if [it] would have the effect of preventing or unreasonably interfering with railroad
transportation‖]; California High-Speed Rail Authority, Petition (STB, Dec. 12,
2014, No. FD 35861) 2014 WL 7149612, p. *8 [opining that even voluntary
agreements may be preempted to the extent they unreasonably interfere with
interstate commerce or rail operations].) I do not read the majority opinion to
foreclose such arguments on remand. (Cf., e.g., maj. opn., ante, at pp. 47, 67.)
       With these observations, I join the majority opinion.


                                                 KRUGER, J.




                                          2
                     DISSENTING OPINION BY CORRIGAN, J.

       I respectfully dissent. The majority properly explains why any application
of the California Environmental Quality Act (CEQA) that interrupts rail service
would be preempted by the ICC Termination Act (ICCTA). (Maj. opn., ante, at
pp. 34-41; see Pub. Resources Code, § 21000 et seq. (CEQA); 49 U.S.C. § 10101
et seq. (ICCTA).) The majority acknowledges that no CEQA remedy can be
imposed on the Northwestern Pacific Railroad Company (NWPCo) in this case.
(Maj. opn., ante, at pp. 66-67.) However, it reasons that as applied to the North
Coast Railroad Authority (NCRA), a state agency, CEQA is not a ―regulation‖ but
a mere act of ―self-governance.‖ (Id. at p. 20; see id. at pp. 45-65.) I do not
follow that logic.
       There is no difference in CEQA procedures as they apply to projects
undertaken by public agencies, as opposed to private projects over which an
agency has power of approval.1 The proposition that a law of general application


1       A project subject to CEQA is ―an activity which may cause either a direct
physical change in the environment, or a reasonably foreseeable indirect physical
change in the environment, and which is any of the following:
        ―(a) An activity directly undertaken by any public agency.
        ―(b) An activity undertaken by a person which is supported, in whole or in
part, through contracts, grants, subsidies, loans, or other forms of assistance from
one or more public agencies.
        ―(c) An activity that involves the issuance to a person of a lease, permit,
license, certificate, or other entitlement for use by one or more public agencies.‖
(Pub. Resources Code, § 21065.)
may be considered a ―regulation‖ of private activity, but not of public activity in
the same sphere, appears to be unsupported by precedent.2 Nor does the majority
explain how it is that the state is free to ―govern‖ itself by applying CEQA when it
undertakes a rail project, something ordinarily done by the private sector, but not
when exercising its permitting authority over a private rail project, which is a
quintessentially governmental function. The majority emphasizes the state‘s
―zone of autonomy‖ as a railroad owner. (Maj. opn., ante, at p. 47.) However,
neither NCRA nor any of the other state agencies involved in this case subscribe to
the self-governance theory. The majority‘s approach forces the state to undertake
a burden no private railroad owner must bear.
       The majority recognizes that if a state decides to enter the railroad business,
it is subject to the same federal regulations as private carriers. (Hilton v. South
Carolina Public Railways Comm‟n (1991) 502 U.S. 197, 203; Transportation
Union v. Long Island R. Co. (1982) 455 U.S. 678, 685, 687-689; California v.
Taylor (1957) 353 U.S. 553, 566-567; maj. opn., ante, at pp. 57-58, fn. 7.)
Nevertheless, it concludes that ICCTA applies differently to public and private rail
operators. It attempts to minimize its disparate treatment of public operators by
reasoning that a private operator might choose to subject itself to an environmental
review process, and permit its shareholders or stakeholders to challenge its
handling of that process. (Maj. opn., ante, at p. 65.) Hypothetically, a corporation
might do that. But a challenge that had the effect of interfering with the operator‘s
obligations as a common carrier would be subject to Surface Transportation Board
(STB) regulation. (See maj. opn., ante, at p. 24.) And if the challenge were

2      Neither Gregory v. Ashcroft (1991) 501 U.S. 452, nor Nixon v. Missouri
Municipal League (2004) 541 U.S. 125, nor the ―market participant doctrine‖ line
of cases (see maj. opn., ante, pp. 60-64) stands for the idea that the same law may
be a ―regulation‖ as applied to a private party, but ―self-governance‖ as applied to
a public agency.



                                           2
brought in court, it would be barred by ICCTA‘s specification that ―the remedies
provided under this part with respect to regulation of rail transportation are
exclusive and preempt the remedies provided under Federal or State law.‖ (49
U.S.C. § 10501(b).)
       The majority can avoid the consequences of its rule here only because
NCRA, despite its status as a common carrier, does not directly operate the
Russian River line. It has transferred operational responsibility to its franchisee,
NWPCo. However, no escape from the majority‘s holding will be available to
public entities who operate rail lines themselves, or who are sued at an early stage
of a railroad project, before a franchisee is in place. In such cases, today‘s holding
will displace the longstanding supremacy of federal regulation in the area of
railroad operations by allowing third party plaintiffs to thwart or delay public
railroad projects with CEQA suits. Such an outcome is both unfair to public
entities and inimical to the deregulatory purpose of ICCTA. (See maj. opn., ante,
at pp. 27-29.)
       Furthermore, as the majority recognizes, the holding in this case is in direct
conflict with the stated views of the STB. (Maj. opn., ante, at pp. 59-60.) I
question the wisdom of creating such a conflict, based not on settled law but on an
entirely novel theory construing regulation as a form of ―self-governance.‖

                                                         CORRIGAN, J.




                                          3
See last page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Friends of the Eel River v. North Coast Railroad Authority
__________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 230 Cal.App.4th 85
Rehearing Granted

__________________________________________________________________________________

Opinion No. S222472
Date Filed: July 27, 2017
__________________________________________________________________________________

Court: Superior
County: Marin
Judge: Faye D. Opal and Roy O. Chernus

__________________________________________________________________________________

Counsel:

Shute Mihaly & Weinberger, Ellison Folk, Amy J. Bricker, Edward T. Schexnayder and Laura D. Beaton
for Plaintiff and Appellant Friends of the Eel River.

Law Offices of Sharon E. Duggan, Sharon E. Duggan; Klamath Environmental Law Center, William
Verick; Environmental Law and Justice Clinic at Golden Gate University School of Law, Helen H. Kang,
Ashley Pellouchoud; Environmental Law Clinic and Mills Legal Clinic at Stanford Law School and
Deborah A. Sivas for Plaintiff and Appellant Californians for Alternatives to Toxics.

Law Offices of Stuart M. Flashman and Stuart M. Flashman for Town of Atherton, California Rail
Foundation, Transportation Solutions Defense and Education Fund, Community Coalition on High-Speed
Rail and Patricia Hogan-Giorni as Amici Curiae on behalf of Plaintiffs and Appellants.

Kurt R. Wiese, Barbara Baird and Brian C. Bunger for South Coast Air Quality Management District and
Bay Area Air Quality Management District as Amici Curiae on behalf of Plaintiffs and Appellants.

David Pettit, Melissa Lin Perrella and Ramya Sivasubramanian for Sierra Club, Coalition for Clean Air,
Natural Resources Defense Council, Planning and Conservation League and Communities for a Better
Environment as Amici Curiae on behalf of Plaintiffs and Appellants.

Clare Lakewood and Kassia R. Siegel for Center for Biological Diversity as Amici Curiae on behalf of
Plaintiffs and Appellants.

Holder Law Group and Jason W. Holder for Madera County Farm Bureau and Merced County Farm
Bureau as Amici Curiae on behalf of Plaintiffs and Appellants.

Frank G. Wells Environmental Law Clinic at UCLA School of Law and Sean B. Hecht for Natural
Resources Defense Council, Planning and Conservation League and Sierra Club as Amici Curiae on behalf
of Plaintiffs and Appellants.
Page 2 – S222472 – counsel continued

Counsel:

Fredric Evenson and Brian Acree for Ecological Rights Foundation as Amicus Curiae on behalf of
Plaintiffs and Appellants.

Neary & O‘Brien and Christopher J. Neary for Defendants and Respondents North Coast Railroad
Authority and Board of Directors of North Coast Railroad Authority.

Cox, Castle & Nicholson, R. Chad Hales, Andrew B. Sabey, Linda C. Klein, Stephanie R. Marshall; Law
Office of Douglas H. Bosco and Douglas H. Bosco for Real Party in Interest and Respondent.

Kamala D. Harris and Xavier Becerra, Attorneys General, Robert W. Byrne, Assistant Attorney General,
Annadel A. Almendras, Marc N. Melnick, Myung J. Park and Carolyn Nelson Rowan for California
Environmental Protection Agency, California Natural Resources Agency and certain of their Departments
and Boards as Amici Curiae on behalf of Defendants and Respondents and Real Party Interest and
Respondent.

Kamala D. Harris and Xavier Becerra, Attorneys General, John A. Saurenman, Assistant Attorney General,
Deborah M. Smith and Danae J. Aitchison, Deputy Attorney General, for California High-Speed Rail
Authority as Amicus Curiae on behalf of Defendants and Respondents and Real Party Interest and
Respondent.
Counsel who argued in Supreme Court (not intended for publication with opinion):

Amy J. Bricker
Shute Mihaly & Weinberger
396 Hayes Street
San Francisco, CA 94102-4421
(415) 552-7272

Helen H. Kang
Environmental Law and Justice Clinic at Golden Gate University School of Law
536 Mission Street
San Francisco, CA 94105-2968
(415) 442-6647

Andrew B. Sabey
Cox, Castle & Nicholson
50 California Street, Suite 3200
San Francisco, CA 94111
(415) 262-5100
