Ass'n of Am. Railroads v. U.S. Dep't of Transp.

• Decision Date: 20 July 2018
• Docket Number: No. 17-5123,17-5123
• Citation: 896 F.3d 539
• Parties: ASSOCIATION OF AMERICAN RAILROADS, Appellee v. UNITED STATES DEPARTMENT OF TRANSPORTATION, ET AL., Appellants
• Court: U.S. Court of Appeals — District of Columbia Circuit

896 F.3d 539

ASSOCIATION OF AMERICAN RAILROADS, Appellee

v.UNITED STATES DEPARTMENT OF TRANSPORTATION, ET AL., Appellants

No. 17-5123

United States Court of Appeals, District of Columbia Circuit.

Argued March 5, 2018

Decided July 20, 2018

Patrick G. Nemeroff, Attorney, U.S. Department of Justice, argued the cause for appellants. With him on the briefs were Chad A. Readler, Acting Assistant Attorney General, Jessie K. Liu, U.S. Attorney, Mark B. Stern, Michael S. Raab, and Daniel Tenny, Attorneys, Steven G. Bradbury, General Counsel, U.S. Department of Transportation, James Owens, then-Acting General Counsel, Paul M. Geier, Assistant General Counsel, Christopher S. Perry, Acting Deputy Assistant General Counsel for Litigation and Enforcement, Joy K. Park, Senior Trial Attorney, Juan D. Reyes III, Chief Counsel, Federal Railroad Administration, and Zeb G. Schorr, Assistant Chief Counsel.

Thomas H. Dupree Jr., Washington, argued the cause for appellee. With him on the brief were David A. Schnitzer, Kathryn Kirmayer, and Daniel Saphire, Washington.

Before: Garland, Chief Judge, and Tatel and Millett, Circuit Judges.

Dissenting opinion filed by Circuit Judge Tatel.

Millett, Circuit JudgeA dispute between passenger and freight trains over priority access to railroad tracks has turned into a legal donnybrook over the bounds of congressional power. This court previously held that Congress went off the constitutional rails by empowering Amtrak to establish metrics and standards affecting track usage over the opposition of the private freight railroads that own those tracks and without the intermediation and control of a neutral governmental decisionmaker. More specifically, this court ruled that the Due Process Clause does not allow Amtrak to use an arbitration process to impose its preferred metrics and standards on its competitors, notwithstanding their opposition and that of the Federal Railroad Administration.

The question in this case is how to remedy that constitutional problem. We hold that severing the arbitration provision is the proper remedy. Without an arbitrator's stamp of approval, Amtrak cannot unilaterally impose its metrics and standards on objecting freight railroads. No rule will go into effect without the approval and permission of a neutral federal agency. That brings the process of formulating metrics and standards back into the constitutional fold.

I

A

The Rail Passenger Service Act of 1970, Pub. L. No. 91-518, 84 Stat. 1327, established Amtrak (a/k/a the National Passenger Railroad Corporation) to "reinvigorate a national passenger rail system that had * * * grown moribund and unprofitable," Association of American R.R. v. Department of Transp. , 721 F.3d 666, 668 (D.C. Cir. 2013) ( American Railroads I ), and "to fully develop the potential of modern rail service in meeting the Nation's intercity passenger transportation requirements," Rail Passenger Service Act § 301, 84 Stat. at 1330. In passing that legislation, "Congress recognized that Amtrak, of necessity, must rely for most of its operations on track systems owned by the [regional] freight railroads." Department of Transp. v. Association of American R.R. (American Railroads II) , ––– U.S. ––––, 135 S.Ct. 1225, 1229, 191 L.Ed.2d 153 (2015).

Three years later, Congress granted Amtrak's passenger rail service "preference over freight transportation in using a rail line[.]" 49 U.S.C. § 24308(c). To implement that priority system, Congress authorized Amtrak to enter into agreements with rail carriers and regional transportation authorities "to use [the] facilities of, and have services provided by, the carrier or authority under terms on which the parties agree." Id . § 24308(a). Congress added that the "terms shall include a penalty for untimely performance" by either party. Id . If Amtrak and the carrier or authority could not agree on governing terms, Congress empowered the federal Surface Transportation Board to "order that the facilities be made available and the services provided to Amtrak," and to "prescribe reasonable terms and compensation for using the facilities and providing the services." Id .¹

In 2008, Congress enacted the Passenger Rail Investment and Improvement Act ("2008 Rail Act"), Pub. L. No. 110-432, 122 Stat. 4848,codified at 49 U.S.C. § 24101 note. That statute reconfigured the process for Amtrak to coordinate its rail access with private freight railroads. As is most relevant here, the Act directed that Amtrak and the Department of Transportation's Federal Railroad Administration "shall jointly * * * develop new or [shall] improve existing metrics and minimum standards for measuring the performance and service quality of intercity passenger train operations, including cost recovery, on-time performance and minutes of delay, ridership, on-board services, stations, facilities, equipment, and other services." Id. § 207(a). As part of that process, the 2008 Rail Act requires Amtrak and the Administration to "consult[ ] with" the Surface Transportation Board, rail carriers over whose rail lines Amtrak trains operate, States, passenger representatives, and Amtrak employees about the appropriate metrics and standards. Id .

If Amtrak and the Administration are unable to develop those metrics and standards within 180 days, Congress authorized "any party involved in the development of those standards" to "petition the Surface Transportation Board to appoint an arbitrator to assist the parties in resolving their disputes through binding arbitration." 2008 Rail Act § 207(d), 49 U.S.C. § 24101 note.

B

In tracing the history of this litigation, we write on a full slate. In March 2009, Amtrak and the Federal Railroad Administration published a Federal Register notice inviting comments on proposed metrics and standards pertaining to Amtrak's invocation of its right under the 2008 Rail Act to priority access to the railways. The Association of American Railroads ("Railroad Association") is a group of large freight railroad owners that operate tracks that Amtrak uses. The Railroad Association and its members submitted numerous comments, mostly concerning the increased expense associated with expanding and maintaining the needed track capacity and the timing metrics. See, e.g., J.A. 165, 171, 176.

The final metrics and standards that issued in May 2010 did not alleviate the Railroad Association's concerns. So the Railroad Association filed suit in federal district court challenging the facial constitutionality of Section 207's scheme for promulgating metrics and standards. The Railroad Association argued that the provision unconstitutionally delegated regulatory power over private entities to Amtrak, an allegedly non-governmental entity, by allowing it to influence or control the content of the metrics and standards imposed on its competitors. American Railroads Mot. for Summ. J., Association of American R.R. v. Department of Transp. , Civ. No. 11-1499 (D.D.C. May 31, 2012), ECF No. 8 at 7. The district court found no constitutional problem and granted summary judgment for the government. Association of American R.R. v. Department of Transp. , Civ. No. 11-1499 (D.D.C. May 31, 2012), ECF No. 17 at 2.

On appeal, this court deemed Amtrak to be a private entity and ruled that Section 207 unconstitutionally delegated authority to a private party "to jointly develop performance measures to enhance enforcement of the statutory priority Amtrak's passenger rail service has over other [private freight] trains." American Railroads I , 721 F.3d at 668.

The Supreme Court vacated that constitutional ruling. American Railroads II , 135 S.Ct. at 1234. The Court emphasized that "Amtrak was created by the Government, is controlled by the Government, and operates for the Government's benefit." Id. at 1232. Consequently, when undertaking "its joint issuance of the metrics and standards with the [Federal Railroad Administration], Amtrak acted as a governmental entity for the purposes of the Constitution's separation of powers provisions." Id . at 1232–1233. The Supreme Court then remanded the case for this court to address whether Section 207 ran afoul of the Fifth Amendment's Due Process Clause by giving Amtrak, a "for-profit corporation[,] regulatory authority over its own industry," and whether the arbitration provision violated the Appointments Clause, U.S. CONST., ART . II, § 2, CL. 2. American Railroads II , 135 S.Ct. at 1234.

On remand, this court again held Section 207 unconstitutional. Association of American R.R. v. Department of Transp. (American Railroads III) , 821 F.3d 19 (D.C. Cir. 2016). We held that Section 207 unconstitutionally delegated to Amtrak, a "self-interested entity," id . at 31, the authority to "regulate its resource competitors," id . at 23, in violation of the Due Process Clause.

This court rejected the government's argument that the Federal Railroad Administration's joint role in promulgating the metrics and standards tempered any due process concerns. We explained that the Administration "is powerless to overrule Amtrak" because, if there is "intractable disagreement between the two, the matter is resolved by an arbitrator, who may ultimately choose to side with Amtrak" in binding arbitration. American Railroads III , 821 F.3d at 35. Because the arbitration provision prevents the Administration from "keep[ing] Amtrak's naked self-interest in check," we concluded, "the requirement of joint development does not somehow sanitize the Act." Id . ; see id . at 34 n.4 (distinguishing Supreme Court precedent upholding joint regulatory efforts by "a self-interested group and a government agency" because the Administration's "authority to hold the line against overreaching by Amtrak is undermined by the power of the arbitrator" to independently authorize Amtrak's metrics and standards).

Lastly, this court held that appointment of the arbitrator violated the Constitution's Appointments Clause. This court concluded that the arbitrator's binding decision...