SOUTHERN PACIFIC TRANSPORTATION CO., Plaintiff-Appellant,
v.
PUBLIC UTILITIES COMMISSION OF the STATE OF CALIFORNIA,
Defendant-Appellee,
State of California Department of Transportation,
Intervenor-Defendant-Appellee.
No. 82-4466.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted April 11, 1983.
Decided Sept. 27, 1983.
Mаlcolm Dungan, San Francisco, Cal., for plaintiff-appellant.
Vincent MacKenzie, San Francisco, Cal., O.J. Solander, Sacramento, Cal., for defendant-appellee.
Appeal from the United States District Court for the Northern District of California.
Before DUNIWAY, SNEED and FARRIS, Circuit Judges.
DUNIWAY, Circuit Judge:
Southern Pacific Transportation Co. appeals from the district court's judgment dismissing Southern Pacific's action seeking an injunction against enforcement of аn order by the California Public Utilities Commission requiring Southern Pacific to run certain commuter trains within the state. The district court held that res judicata prevents consideration of Southern Pacific's argument that the Commission order is illegal because the order is preempted by federal law.
I. Facts.
This dispute arises from orders of the California Commission requiring Southern Pacific to run weekday commuter trains over its line between Oxnаrd and Los Angeles.
The Commission issued its first order on June 3, 1980. It required Southern Pacific to build several station platforms and parking lots and to run two trains each way every weekday. Equipment was to be provided by the county of Los Angeles and the state Department of Transportation (Caltrans), which had requested the commuter service. That order was stayed, however, and on September 23, 1980, the Commission issued another deсision modifying the first order. The railroad petitioned for rehearing of the September order, and then on October 3, 1980 filed in the supreme court of California a petition for writ of review. That petition was docketed as No. S.F. 24220. It sought review of so much of the June order as was reaffirmed in the September order.
Early in 1981, the county of Los Angeles moved to withdraw as a complainant. On April 7, 1981, the Commission granted the cоunty's motion. In two orders issued on that day, it also denied a motion by Southern Pacific to dismiss, and ordered the commuter service to begin. In response, Southern Pacific filed, on May 7, 1981, petitions for rehearing of the two April orders. The Commission stayed the portions of the orders demanding immediate construction of stations and parking lots, but on June 16, 1981, denied rehearing. Southern Pacific then, on July 16, 1981, filed in the state supreme court a second petition for a writ of review, this one referring to the Commission's April 7 and June 16 orders. The petition was docketed as S.F. No. 24316. On December 23, 1981, the state supreme court denied the two petitions for review without hearing or opinion. Southern Pacific did not seek review of the state supreme court's decision in the United States Supreme Court.
The Commission lifted the stay of its last order on June 2, 1982 and directed that the railroad begin construction of the station platforms and parking lots. In response, Southern Pacific filed in federal district court its complaint seeking declaratory and injunctive relief against enforcement of the Commission's order. Its complaint named the Commission as the only defendant, but the district court later granted Caltrans' motion to intervene as a defendant.
Southern Pacific argued, inter alia, that the Staggers Rail Act of 1980, Pub.L. 96-448, 94 Stat. 1895, section 214(a) of which amended 49 U.S.C. Sec. 11501, preempted the Commission's jurisdiction over commuter service. The Staggers Act was enacted on October 14, 1980, during the early stages of the proceedings before the state Commission. It required that a state "authority" seeking to exercise "jurisdiction over intrastate rates, classifications, rules and practices" must apply, within 120 days, for certification to the Interstate Commerce Commission (ICC). 49 U.S.C. Sec. 11501(b)(2). If, after applying certain standards, the ICC refused to certify a state authority, or if the authority did not apply for certification, the authority was forbidden to "exercise any jurisdiction over intrastate rates, classifications, rules and practices ...." Id., Sec. 11501(b)(4)(A).
California did not seek certification within the deadline under Sec. 11501, and, on April 17, 1981, the ICC issued a deсision stating, "States ... that did not seek certification have lost all jurisdiction to regulate intrastate rail transportation." Ex Parte No. 388,
Southern Pacific argued before the district court that because the Staggers Act preempted all state jurisdiction over all intrastate rail service in California, the Commission's orders were invalid. The Commission argued in response that the Staggers Act preempted state authority only over intrastate freight service, not passenger service. The district court did not reach the merits. It held instеad that the California supreme court's denial of the petitions for review was res judicata as to the preemption issue. Summary judgment was entered against Southern Pacific.
II. Our Jurisdiction.
We first consider whether Southern Pacific's action to enjoin enforcement of the Commission's order is a case "arising under" the federal Constitution or laws and thus is within the jurisdiction of the federal courts. 28 U.S.C. Sec. 1331. This issue was not raised in the district cоurt, and the parties argued it here only upon our instructions.
Southern Pacific's action to enjoin enforcement of the California Commission's order is based on its claim that federal law preempts the Commission's jurisdiction over passenger rail service. Thus, Southern Pacific sought to use preemption, which might have been its defense to a state court action to enforce the Commission's order, offensivеly in federal court to enjoin enforcement. Our order to the parties asked them to brief the issue of whether there is federal jurisdiction of such an action, citing Miller-Wohl Co. v. Commissioner of Labor & Industry, 9 Cir., 1982,
Miller-Wohl was an action in federal district court by an employer seeking a declaratory judgment that federal law preempted a state law that the employer was accused of violating. We held that thеre was no federal jurisdiction of the employer's action because its claim was essentially a defense to the state court action.
The plaintiffs in Miller-Wohl and Armstrong sought only declaratory judgments that federal law preempted the relevant state law. A decision by the Supreme Court since the date of oral argument in this case makes clear, however, that when a plaintiff seeks to enjoin stаte action because federal law preempts it, jurisdiction is proper. Shaw v. Delta Air Lines, Inc., 1983, --- U.S. ----, fn. 14 at ----,
In Shaw, plaintiffs filed actions for injunctive and declaratory relief in district court, alleging that the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1001 et seq., preempted certain state civil rights and disability payments statutes. In footnote 14, id. --- U.S. at ---- - ----,
It is beyоnd dispute that federal courts have jurisdiction over suits to enjoin state officials from interfering with federal rights. See Ex parte Young,
See, to the same effect, Construction Laborers Vacation Trust, supra, --- U.S. at ---- n. 20,
Because Southern Pacific's complaint sought to enjoin enforcement of an order it claimed to be preempted by federal law, the case "arose under" federal law. 28 U.S.C. Sec. 1331. See Conference of Federal Savings & Loan Ass'ns v. Stein, 9 Cir., 1979,
III. Res Judicata.
The California supreme court denied writs of review of decisions of the California Commission. That is a denial on the merits and is to be given res judicata effect in federal courts. The Pacific Telephone & Telegraph Co. v. Public Utilities Commission, 9 Cir., 1979,
Southern Pacific does not dispute these general propositions, but argues that they do not apply here. Its principal argument, which it repeats in various forms, is that because the Staggers Act preempts state regulatory jurisdiction over intrastate railway service, it forbids any state court from ruling to the contrary. Southern Pacific misses the mark in two directions. First, it presumes its own interpretation of the Act--that the Act does indeed preempt state regulatory jurisdiction over all intrastate rail service. That, of course, is contrary to the state court decision to which we are considering giving rеs judicata effect. If res judicata applies, a fortiori, it defeats Southern Pacific's premise. Second, the railroad confuses a state's regulatory authority under the Act with a state court's authority to interpret the Act.
The Supreme Court in Grubb v. Public Utilities Commission of Ohio, 1930,
The [bus operator] relies on the commerce clause of the Constitution as in some way operating to commit to the federal courts and to withhold from the state courts jurisdiction of all suits relating to the regulation or attempted regulation of interstate commerce. This view of that clause is quite inadmissible. It has no support in any quarter, is at variance with the actual practice in this class of litigation, ... and is in conflict with the doctrine often sustained by this Court that the state and federal courts have concurrent jurisdiction of suits of a civil nature arising under the Constitution and laws of the United States, save in exceptional instances where the jurisdiction has been restricted by Congress to the federal courts.
We applied thе principle of Grubb in Board of Trustees of Carpenters Pension Trust Fund for Northern California v. Reyes, 9 Cir., 1982,
Nevertheless, Southern Pacific contends that Grubb does not require res judicata treatment of a California court's interpretation of the Staggers Act becаuse the Interstate Commerce Commission has exclusive "subject matter" jurisdiction under the Act. It relies on the decision of a three-judge district court in Pennsylvania Railroad Co. v. Sharfsin, M.D.Pa.,
Southern Pacific рoints to nothing in the Staggers Act giving federal courts exclusive subject matter jurisdiction over cases arising under the Act. For that reason, Kalb v. Feuerstein, 1940,
Southern Pacific further argues that a state administrative agency's decision should not be given preclusive effect when the agency lacks jurisdiction over the subject matter of the decision. However, it is not the State Commission's decision to which the district court gave res judicata effect, it was the decision of the California supreme court. For that reason, Lightsey v. Harding, Dahm & Co., 7 Cir., 1980,
The railroad argues that res judicata cannot permit a state to violate the Supremacy Clause, any more than a common law doctrine or state statute can. Federal courts, however, are required by federal law to apply res judicata to state court decisions. 28 U.S.C. Sec. 1738; see Allen, supra,
Southern Pacific argues in its reply brief for the first time on appeal that the state supreme court's denial of its petitions for review of the Commission's orders should not be given res judicata effect because the denial was not on the merits, but "purely procedural." It contends that state law required the California court to deny the petitions because (1) the Commission proceedings appealed from were not final, and (2) the Staggers Act preemption issue was not raised, and could not have been raised, before the Commission; therefore, the state court was not permitted to rule on it.
We need not consider the first argument because it was not raised below. See Hamilton v. Firestone Tire & Rubber Co., 9 Cir., 1982,
The second argument is that because Art. III, Sec. 3.5 of the California constitution prohibits the Commission from entertaining the preemption issue, under Cal.Pub.Util.Code Sec. 1732, the state supreme court could not have entertained the issue either.
Art. III, Sec. 3.5 states that an administrative agency has no power:
(a) To declare a statute unenforceable, or refuse to enforce a statute, on the basis of it being unconstitutional unless an appellate court has made a determination that such statute is unconstitutional;
(b) To declare a statute unconstitutional;
(c) To declare a statute unenforceable, or to refuse to enforce a statute on the basis that federal law or federal regulations prohibit the enforcement of such statute unless an appellate court has made a determinatiоn that the enforcement of such statute is prohibited by federal law or federal regulations.
Cal.Pub.Util.Code Sec. 1732 limits judicial review of Commission proceedings by providing:
The application [to the Commission] for a rehearing shall set forth specifically the ground or grounds on which the applicant considers the decision or order to be unlawful. No corporation or person shall in any court urge or rely on any ground not so set forth in the application.
Thus, Southern Pacific contends that Sec. 3.5 prohibited the Commission from considering the preemption question, that therefore the issue could not have been raised in an application for rehearing under Sec. 1732, and that therefore the California supreme court could not have considered it on review.
Section 3.5 did not prohibit Southern Pacific from stаting its preemption claim to the Commission, however. It forbids the Commission from declaring any state statute unconstitutional or unenforceable, but it does not prohibit a party before the Commission from stating an issue in order to preserve it for review by the California supreme court. Moreover, Southern Pacific has pointed to no statute that the Commission would be striking down by recognizing any purported preemptiоn of state authority by the Staggers Act.
Southern Pacific argues further that it could not have raised the Staggers Act issue before the Commission because, under the Act, the state was not divested of railroad authority until after the Commission's orders were issued. But Southern Pacific could have raised, and apparently did raise, the preemption issue in its motion for rehearing of the Commission's orders of April 7, 1981. The ICC stated on April 17, 1981, thаt California was without jurisdiction under the Staggers Act. Ex Parte No. 388,
Finally, Southern Pacific suggests that even if res judicata would otherwise be proper, this court should decline to apply it here for reasons of equity. But the only equitable concern the railroad puts forth is its contention, made repeatedly above, that the Staggers Act preempts state regulation of intrastate railroad service. As we have already explained, we cannot accept that premise, in view of the state supreme court's decision to the contrary which Southern Pacific did not take to the Supreme Court of the United States.
Affirmed.
IV.
We fеel compelled to note what appears to us to be a dereliction of duty to the court on the part of Southern Pacific's counsel. On its face, this court's decision in United Airlines, Inc. v. Division of Industrial Safety, supra, is contrary to Southern Pacific's contention that the district court had "arising under" jurisdiction, 28 U.S.C. Sec. 1331. However, counsel did not mention it in their briefs. This, we suggest, is a breach of the duty imposed by counsel in the Codе of Professional Responsibility DR 7-106(B)(1):
In presenting a matter to a tribunal, a lawyer shall disclose ... legal authority in the controlling jurisdiction known to him to be directly adverse to the position of his client and which is not disclosed by opposing counsel.
We note that the law firm that represents Southern Pacific here also represented United Airlines in that case.
We are equally puzzled that counsel for the California Cоmmission and Caltrans did not cite United Airlines, but we know of no rule of professional responsibility that requires a lawyer to cite to the court every case that supports the lawyer's position. We shudder to think what problems such a rule would create, in light of the enormous increase in reported decisions of this and other courts in recent years.
SNEED, Circuit Judge, concurring:
In a very real sense this case reveals a series of missed oрportunities on the part of appellant to have its preemption claims heard and decided. As it turns out, the appellant could have brought its suit to obtain an injunction in federal court following the enactment of the Staggers Act and prior to the California Supreme Court's denial of appellant's petition for review. Perhaps, but by no means certainly, it could have brought suit in federal court seeking only a declaratory judgment at that time also. At the time any decision to initiate such suit would have had to have been made, however, United Air Lines, Inc. v. Division of Industrial Safety of the Department of Industrial Relations,
The missed opportunity that proves fatal, however, is the fаilure to present vigorously the preemption argument before the California Supreme Court and the failure to seek review by the Supreme Court of the United States. Having chosen to eschew recourse to the federal courts prior to termination of the state proceedings, although perhaps on the basis of a misapprehension of the law, the appellant must be subjected to the consequences of res judicata.