This case delineates the power of the Surface Transportation Board (“STB”) to decide what the extent to which the construction and operation of transloading 1 2 facilities fall within the STB’s exclusive jurisdiction, freeing the operations from local regulation by way of federal preemption. Petitioners New York & Atlantic Railway Company (“NYAR”) and Coastal Distribution, LLC (“Coastal”) appeal from the February 1, 2008, September 26, 2008, and October 16, 2009 orders of the STB finding that a transload facility operated by Coastal in NYAR’s Farmingdale Yard in the town of Babylon does not fall within the STB’s exclusive jurisdiction. Petitioners argue that the transload facility is an integral part of the NYAR’s railroad operations, and thus entitled to federal preemption. As we find the decisions by the STB were neither arbitrary nor capricious, we deny the petition.
BACKGROUND
NYAR is a short-line railroad, formed to run the freight operation of the Long Island Rail Road (“LIRR”) after the LIRR became exclusively a passenger operation. The freight franchise agreement includes the right to use the LIRR’s Farmingdale Yard, located within the town of Babylon. The Farmingdale Yard is located on two parcels leased by LIRR from Pinelawn Cemetery. The leases, entered into in 1904 and 1905, permit the LIRR to lease the parcels for an initial term of 99 years, with the right to renew for another 99 years. In a separate state court action, Pinelawn is seeking to evict NYAR and Coastal from the Farmingdale Yard on the grounds of abandonment.
Pinelawn Cemetery v. Coastal Distribution, LLC,
In 2002, Coastal and NYAR entered into an agreement to refurbish the Farming-dale Yard to primarily handle the trans-loading of construction materials, mainly building materials and construction and demolition debris (the “Facility”). In return for building a structure suited to that task, Coastal would be granted the exclusive right to conduct transloading operations at the Farmingdale Yard by NYAR. It is undisputed that Babylon’s zoning ordinance forbids the operation of a waste transfer facility anywhere in the Town except for an area remote from the Facility and inaccessible by rail.
On March 29, 2004, as work on the new transload facility neared completion, a Babylon building inspector served Coastal with a stop work order stating that the transload facility violated the Town’s zoning ordinance. Coastal appealed to the Town’s Zoning Appeals Board, which upheld the stop work order in 2005, finding the facility constituted an impermissible use.
On April 26, 2005, NYAR and Coastal filed suit in the Eastern District of New
Babylon and Pinelawn Cemetery petitioned the STB for a declaratory order that the Town’s zoning ordinance was not preempted. In February, 2008, the STB granted the petition, finding the Farming-dale transload facility was not within the scope of its jurisdiction.
Pinelawn Cemetery,
STB Finance No. 35057,
The STB concluded that “the facts of this case fail to establish that Coastal’s activities are being offered by NYAR or through Coastal as NYAR’s agent or contract operator.” Id. at *4. The STB found that when read in its entirety, the Operations Agreement between Coastal and NYAR reveals that NYAR is not involved in the facility, such that “[ujnder the parties’ agreement, NYAR’s responsibility and liability for the cars end when they are uncoupled at the Farmingdale Yard and resumes when they are coupled to NYAR’s locomotive.” Id. (footnote omitted). The STB determined that Coastal exercised almost total control over the facility, including the exclusive right to conduct transloading operations; is solely responsible for constructing and maintaining the facility, including track repairs; and provides and maintains all rail cars. Id. The STB also found that the pricing and payment structure demonstrated a lack of control by NYAR, as Coastal charged a loading fee for its transloading services, over which the NYAR exercised no control, and that Coastal conducted all its own customer negotiations, paid its own bills, collected its loading fee separately from customers and could enter into separate agreements in its own name. Id.
Coastal and NYAR moved for reconsideration.
Pinelawn Cemetery,
STB Finance 35057,
On October 10, 2008 — a few weeks after
Babylon II
was served on the parties—
Babylon and Pinelawn petitioned the STB for the third time, asking that it issue a declaratory order holding that the decisions in
Babylon I
and
Babylon II
remained valid following the Amended Agreement and the passage of the CRA.
Pinelawn Cemetery,
STB Finance 35057,
NYAR and Coastal sought review of the STB’s decisions in the United States Court of Appeals for the District of Columbia. That court transferred the case to us, finding venue proper here as “[t]he underlying controversy ... is subject to a preliminary injunction issued by the Eastern District of New York and affirmed by the Second Circuit. Litigation in those courts is ongoing.” New York & Atl. Ry. Co. v. Surface Transp. Bd., 2010 U.S.App. LEXIS 6645, at *2 (D.C.Cir. Mar. 29, 2010) (citations omitted). This appeal followed.
DISCUSSION
I. Standard of Review.
It is well settled that “Congress has exercised broad regulatory authority over rail transportation.”
Island Park, LLC v. CSX Transp.,
As to the application of Section 10501 to the facts as determined by STB, the parties agree that under the Adminis
II. The STB’s jurisdiction pursuant to the ICCTA
The ICCTA grants the STB exclusive jurisdiction over “transportation by rail carriers.” 49 U.S.C. § 10501(b)(1). “Transportation” includes a “yard, property [or] facility ... of any kind related to the movement of [property] by rail, regardless of ownership or an agreement concerning use.” 49 U.S.C. § 10102(9)(A). Many courts, including ours, recognize that the ICCTA grants the STB “wide authority” over transloading facilities.
Green Mountain,
The issue before us, then, is whether the STB exercises exclusive jurisdiction over “the construction, acquisition, operation, abandonment or discontinuance of spur, industrial, team, switching, or side tracks, or facilities” under 49 U.S.C. § 10501(b)(2) even when such facilities are not operated by, or under the control of, a “rail carrier” as defined in Section 10501(b)(1). We begin our analysis by examining the language of the statute, which provides in relevant part:
(a) (1) Subject to this chapter, the Board has jurisdiction over transportation by rail carrier that is—
(A) only by railroad; or
(B) by railroad and water, when the transportation is under common control, management, or arrangement for a continuous carriage or shipment;
(b) The jurisdiction of the Board 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, 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.
(c) (1) In this subsection—
(2) Except as provided in paragraph (3), the Board does not have jurisdiction under this part over—
(A) mass transportation provided by a local government authority; or
(B) a solid waste transfer facility....
49 U.S.C..§ 10501.
Here, the STB reasoned that before it can exercise exclusive jurisdiction under Section 10501(b)(2), “an activity must con
We agree with the STB’s reading of the statute, which gives each section a clear purpose: Section (a) defines the scope of the STB’s jurisdiction, providing the STB with jurisdiction over “transportation ... by railroad”: Section (b) explains when that jurisdiction is exclusive and preempts other law; and Section (c) carves out exceptions to the jurisdictional grant set forth in Section (a). As the STB points out, Section 10501(b)(2) covers ancillary activities, such as yard track, that were long exempt from preapproval licensing requirements by STB and its predecessor agency, the ICC.
See
49 U.S.C. 10906 (STB does not have licensing “authority under this chapter over construction, acquisition, operation, abandonment, or discontinuance of spur, industrial, team, switching, or side tracks”). Both the courts and the STB thus consistently find that to fall within the STB’s exclusive jurisdiction, the facility or activity must satisfy both the “transportation” and “rail carrier” statutory requirements.
See, e.g., Hi Tech Trans, LLC v. New Jersey,
In
Hi Tech,
the Canadian Pacific Railroad and Hi Tech entered into a license agreement, under which Hi Tech agreed to build a C
&
D bulk waste loading facility at the Oak Island Rail Yard (“OIRY”).
Id.
at 300. At Hi Tech’s transload facility, trucks arrived with C & D waste, discharged the C & D waste into a Hi Tech hopper, and that waste was then loaded into rail cars from the hoppers. Canadian Pacific then transported the waste.
Id.
Hi Tech’s agreement made it responsible for constructing and maintaining the facility, and Canadian Pacific disclaimed liability and responsibility for Hi Tech’s operations.
Hi Tech Trans, LLC,
STB Finance 34192,
The Third Circuit found:
Even if we assume arguendo that Hi Tech’s facility falls within the statutory definition of “transportation” and/or “railroad,” the facility still satisfies only a part of the equation. The STB has exclusive jurisdiction over “transportation by rail carrier.” However, the most cursory analysis of Hi Tech’s operations reveals that its facility does not involve “transportation by rail carrier.” The most it involves is transportation “to rail carrier.” Trucks bring C & D debris from construction sites to Hi Tech’s facility where the debris is dumped into Hi Tech’s hoppers. Hi Tech then “transloads,” the C & D debris from its hoppers into rail cars owned and operated by CPR, the railroad. It is CPR that then transports the C & D debris “by rail” to out of state disposal facilities.
Hi Tech,
As explained above, there is no question that the activity at issue here constitutes “transportation” within the meaning of the statute. The only argument is whether the activities were performed by or under the control of a rail carrier. To make that determination, the STB examined the record evidence before it, including the agreement between the parties. The STB found that its jurisdiction “extends to the rail-related activities that take place at transloading facilities if the activities are performed by a rail carrier or the rail carrier holds out its own service through the third-party as an agent or exerts control over the third-party’s operations.”
Babylon I,
To support its findings, the STB determined that (1) “[ujnder the parties’ agreement, NYAR’s responsibilities and liability for the cars end when they are uncoupled at the Farmingdale Yard and resumes when they are coupled to NYAR’s locomotive”; (2) Coastal exercises almost total control over the facility, including the exclusive right to conduct transloading operations; is solely responsible for constructing and maintaining the facility, including track repairs; and provides and maintains all rail cars; (3) Coastal may charge a loading fee for its transloading services which is in addition to the rail transportation charge payable to NYAR, and over which NYAR exercises no control; (4) Coastal conducts all its own customer negotiations, pays its own bills, collects its loading fee separately from customers and may enter into separate agreements in its own name; and (5) Coastal maintains liability insurance in favor of NYAR and agreed to indemnify NYAR for all claims and liabilities arising out of Coastal’s use of the premises. Id at *4-5.
Based on these facts, the STB concluded that:
Coastal is offering its own services to customers directly, and NYAR’s involvement is essentially limited to transporting cars to and from the facility. Because Coastal is the only party that operates the transloading facility and is responsible for it, and because NYAR has assumed no liability or responsibility for Coastal’s transloading activities, NYAR’s level of involvement with Coastal’s transloading operations at the Farmingdale Yard is insufficient to make Coastal’s activities an integral part of NYAR’s provision of transportation by “rail carrier.” Thus, the Board does not have jurisdiction over Coastal’s activities, and Federal preemption in section 1051(b) does not apply.
Id. at *4 (footnote omitted).
The STB determined the Amended Agreement also failed to demonstrate NYAR exercised sufficient control over the Facility to bring it within the STB’s jurisdiction. Specifically, the STB determined that (1) Coastal continues to be solely responsible for marketing its transload service; (2) Coastal retained the transload fee, paying rent to NYAR in the form of a usage fee; and (3) NYAR pays Coastal nothing.
Babylon III,
Moreover, the STB’s analysis in
Babylon I, Babylon II
and
Babylon III
is consistent with other STB decisions involving the intersection of railroads and transload
By Hi Tech’s reasoning, any third party or noncarrier that even remotely supports or uses rail carriers would come within the statutory meaning of transportation by rail carrier. The Board and its predecessor, the Interstate Commerce Commission, have indicated that the jurisdiction of this agency may extend to certain activities and facets of rail transloading facilities, but that any such activities or facilities must be closely related to providing direct rail service. In every case, jurisdiction was found and local regulations relating to transportation facilities preempted only when those facilities have been operated or controlled by a rail carrier. Here, Hi Tech’s activities are not performed by a rail carrier.
Id. (internal citations omitted). In so holding, the STB relied on facts similar to those presented here:
The facts of this case establish that Hi Tech’s relationship with CP is that of a shipper with a carrier. Hi Tech brings cargo and loads it onto rail cars, and CP, under the Transportation Agreement, hauls it to a destination designated by Hi Tech. In fact, CP describes Hi Tech as its largest shipper at the Oak Island Yard, and Hi Tech boasts the same. Moreover, CP disclaims any agency or employment relationship with Hi Tech and, under the License Agreement, the parties all but eliminate CP’s involvement in the operation of the transloading facility and its responsibility for it. There is no evidence that CP quotes rates or charges compensation for use of Hi Tech’s transloading facility. Thus, CP’s level of involvement with Hi Tech’s transloading operation at its Oak Island Yard is minimal and insufficient to make Hi Tech’s activities an integral part of CP’s provision of transportation by rail carrier.
Id.
(footnote omitted). The Third Circuit agreed, holding that using rail cars to transport debris “does not morph Hi Tech’s activities into ‘transportation by rail carrier.’ ”
Hi Tech,
Moreover, other STB decisions demonstrate that where the railroad maintains the appropriate control over the transload facility, the STB exercises its exclusive jurisdiction and federal preemption applies.
See City of Alexandria, Virginia,
STB Finance 35157,
Finally, the STB properly determined that the Facility is not covered by the CRA. The CRA removes “solid waste transfer facilities” from the STB’s jurisdiction, except in certain enumerated cases detailed in 49 U.S.C. § 10908(b). The exemptions apply only to facilities that fall under the STB’s jurisdiction. 49 U.S.C. § 10908(a). As we agree with the STB’s conclusion that the Facility “is not (and never was) part of ‘transportation by rail carrier’ within the Board’s jurisdiction,”
Babylon III,
CONCLUSION
We have considered the remainder of petitioners’ arguments and find them without merit. For the reasons given above, the petition is denied.
Notes
. Transloading is the practice of transferring a shipment from one mode of transportation to another, i.e. from trucks to rail cars.