BNSF Ry. Co. v. Cal. Dep't of Tax & Fee Admin.

• Decision Date: 13 September 2018
• Docket Number: No. 16-17130,16-17130
• Citation: 904 F.3d 755
• Parties: BNSF RAILWAY COMPANY; Union Pacific Railroad Company, Plaintiffs-Appellees, v. CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION; David Botelho, in his official capacity as Acting Director of the California Department of Tax and Fee Administration; Xavier Becerra, Attorney General; California Governor's Office of Emergency Services ; Mark Ghilarducci, in his official capacity as Director of the California Governor's Office of Emergency Services, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

904 F.3d 755

BNSF RAILWAY COMPANY; Union Pacific Railroad Company, Plaintiffs-Appellees,

v.CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION; David Botelho, in his official capacity as Acting Director of the California Department of Tax and Fee Administration; Xavier Becerra, Attorney General; California Governor's Office of Emergency Services ; Mark Ghilarducci, in his official capacity as Director of the California Governor's Office of Emergency Services, Defendants-Appellants.

No. 16-17130

United States Court of Appeals, Ninth Circuit.

Argued and Submitted August 29, 2017 Pasadena, California

Filed September 13, 2018

Linda L. Gandara (argued), Nicholas Stern, and Carolyn Nelson Rowan, Deputy Attorneys General; Randy L. Barrow, Supervising Deputy Attorney General; Robert W. Byrne, Senior Assistant Attorney General; Xavier Becerra, Attorney General; Office of the Attorney General, Sacramento, California; for Defendants-Appellants.

Raymond A. Atkins (argued), Hanna M. Chouest, and Carter G. Phillips, Sidley Austin LLP, Washington, D.C.; John F. Muller and Benjamin J. Horwich, Munger Tolles & Olson LLP, San Francisco, California; for Plaintiffs-Appellees.

Before: William A. Fletcher and Sandra S. Ikuta, Circuit Judges, and Nancy Freudenthal,^* Chief District Judge.

W. FLETCHER, Circuit Judge:

The California State Board of Equalization ("California") appeals from a preliminary injunction preventing implementation of California Senate Bill 84 ("SB 84"). Cal. Gov't Code §§ 8574.30 – 8574.48. SB 84 requires railroads to collect fees from customers shipping certain hazardous materials and then to remit those fees to California. Id. § 8574.32(a), (b). BNSF Railway Company and Union Pacific Railroad Company ("the Railroads") sued to enjoin SB 84, arguing that it violates three federal statutes and the federal Constitution. The district court found that the Railroads were likely to succeed on the merits and entered a preliminary injunction. We affirm.

I. Background

In June 2014, California's Interagency Rail Safety Working Group released a report entitled "Oil by Rail Safety in California." The working group noted an increase, both nationally and in California, in spills of oil transported by rail and concluded that California was ill prepared to handle these spills. California's Office of Emergency Services echoed these concerns in a separate report a year later. In response, the California Legislature passed SB 84. Cal. Gov't Code §§ 8574.30 – 8574.48.

SB 84 charges a fee to "each person owning any of the 25 most hazardous material commodities ... that are transported by rail in California." Id. § 8574.32(a). The fee is currently established at $45.00 per loaded rail car. 19 Cal. Code Regs. § 2704(b). If the rail car is loaded in California, the fee is imposed when the material is loaded onto the car. If the car is loaded outside California, the fee is imposed when the car enters the state. Cal. Gov't Code § 8574.32(b)(1). The same fee is charged irrespective of the distance traveled in California. A railroad may charge shippers an additional fee of up to five percent of the established fee "to offset the administrative cost to collect the fee." Id. § 8574.32(b)(4)(B).

Railroads are required to collect the established fee from shippers of the hazardous materials and to remit collected fees to the state on a quarterly basis. Id. § 8574.32(b)(1) ; id. § 8574.38; 19 Cal. Code Regs. § 2704(c). Failure to collect and remit the fees can result in civil or criminal sanctions. Cal. Gov't Code § 8574.36 ; Cal. Rev. & Tax. Code §§ 55042, 55121, 55363. The fees are deposited in the Regional Railroad Accident Preparedness and Immediate Response Fund ("the Fund"). Cal. Gov't Code § 8574.44(a), (b). After taking into account administrative expenses, money from the Fund is to be used to reimburse a state fund that provided start-up costs for the SB 84 program. Remaining money is to be used, inter alia , to pay for "[p]lanning, developing, and maintaining a capability" for emergency responses to "railroad accidents involving rail cars carrying hazardous materials," and to "releases of hazardous materials from rail cars"; "[a]cquisition and maintenance of specialized equipment and supplies used to respond to a hazardous materials release from a rail car or a railroad accident involving a rail car"; "[s]upport of specialized regional training facilities"; "[c]reation and support of a[n] ... emergency response team"; and "[s]upport for specialized training for state and local emergency response officials." Id. § 8574.44(d), (e)(1), (e)(2), (e)(4–7).

Emergency response equipment purchased with money from the Fund may be used to respond to hazardous material spills resulting from truck accidents. SB 84 specifically provides that such equipment may be "used for emergency response activities unrelated to regional railroad accident preparedness and immediate response ," provided that the Fund is reimbursed for such use. Id. § 8574.44(i) (emphasis added). According to a February 10, 2016, memorandum from the Governor's Office of Emergency Services, the "maintenance cost" of using such equipment is to be reimbursed by "local agenc[ies]" rather than by truck owners or operators responsible for the accident.

The Railroads contend that SB 84 violates three federal statutes—the Interstate Commerce Commission Termination Act of 1995 ("ICCTA"), Pub. L. No. 104-88, 109 Stat. 803 (1995) ; the Hazardous Materials Transportation Act ("HMTA"), Pub. L. No. 93-633, tit. I, 88 Stat. 2156 (1975); and the Railroad Revitalization and Regulatory Reform Act of 1976 ("4-R Act"), Pub. L. No. 94-210, 90 Stat. 31 (1976). They contend, further, that SB 84 violates the dormant Commerce Clause.

"We review a district court's grant or denial of a preliminary injunction for abuse of discretion and the underlying legal principles de novo." DISH Network Corp. v. F.C.C. , 653 F.3d 771, 776 (9th Cir. 2011). To obtain a preliminary injunction, a party requesting the injunction must show "that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Nat. Res. Def. Council, Inc. , 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008).

For the reasons that follow, we conclude that the district court did not abuse its discretion in granting the preliminary injunction.

II. Discussion

A. Preemption under the ICCTA

The 4-R Act prohibits states from imposing a "tax that discriminates against a rail carrier." 49 U.S.C. § 11501(b)(4). If the assessment paid by shippers of hazardous materials is properly characterized as a "tax," the parties agree that SB 84 is preempted under the 4-R Act. If it is properly characterized as a "fee," however, it is not preempted by the 4-R Act. We need not reach the question whether the assessment paid by shippers is a tax or a fee under the 4-R Act because, as written, SB 84 is preempted under the ICCTA even if it is a fee. The discussion that follows assumes that SB 84 imposes a fee.

"In the [ICCTA], Congress abolished the [Interstate Commerce Commission], revised the Interstate Commerce Act, and transferred regulatory functions under that Act to the [Surface Transportation Board]." DHX, Inc. v. Surface Transp Bd. , 501 F.3d 1080, 1082 (9th Cir. 2007). The ICCTA continued a decades-long trend of deregulating railroads. Id. As part of this deregulation program, the ICCTA included a broad preemption provision. Specifically, the ICCTA provides:

The jurisdiction of the [Surface Transportation] Board over—

(1) transportation by rail carriers, and the remedies provided in this part with respect to rates , classifications, rules ..., practices, routes, services, and facilities of such carriers; ...

...

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) (emphasis added). This provision grants the Surface Transportation Board exclusive jurisdiction over "a wide range of state and local regulation of rail activity." Ass'n of Am. Railroads v. S. Coast Air Quality Mgmt. Dist. , 622 F.3d 1094, 1096 (9th Cir. 2010) (emphasis added). "It is difficult to imagine a broader statement of Congress's intent to preempt state regulatory authority over railroad operations." City of Auburn v. United States , 154 F.3d 1025, 1030 (9th Cir. 1998) (citation omitted) (emphasis added).

The ICCTA does not "preempt state or local laws if they are laws of general applicability that do not unreasonably interfere with interstate commerce." Am. Railroads , 622 F.3d at 1097. The ICCTA "preempts all state laws that may reasonably be said to have the effect of managing or governing rail transportation, while permitting the continued application of laws having a more remote or incidental effect on rail transportation. What matters is the degree to which the challenged regulation burdens rail transportation[.]" Id. at 1097–98 (citations and internal quotation marks omitted).

SB 84 requires shippers to pay to railroads a fee currently established at $45.00 per loaded car, and an additional fee of up to five percent of the established fee. Because these fees are paid by shippers as part of the price for shipping hazardous materials by rail, we conclude that they are "rates" within the meaning of § 10501(b). SB 84 is neither a law of "general applicability," nor a law with only a "remote or incidental effect on rail transportation." SB 84 imposes fees on shippers of hazardous materials in California, but only if they ship by rail. It thus "targets" the railroad industry. Adrian & Blissfield R. Co. v. Vill. of Blissfield , 550 F.3d 533, 541 (6th Cir. 2008). Further, in requiring railroads to collect fees from shippers, SB 84 has a direct, rather than a ...