Del Grosso v. Surface Transp. Bd.

• Decision Date: 16 October 2015
• Docket Number: No. 15–1069.,15–1069.
• Citation: 804 F.3d 110
• Parties: Diana Del GROSSO; Ray Smith; Joseph Hatch ; Cheryl Hatch; Kathleen Kelley; Andrew Wilklund; Richard Kosiba, Petitioners, v. SURFACE TRANSPORTATION BOARD; United States, Respondents, Grafton & Upton Railroad Company, Intervenor.
• Court: U.S. Court of Appeals — First Circuit

804 F.3d 110

Diana Del GROSSO; Ray Smith; Joseph Hatch ; Cheryl Hatch; Kathleen Kelley; Andrew Wilklund; Richard Kosiba, Petitioners

v. SURFACE TRANSPORTATION BOARD; United States, RespondentsGrafton & Upton Railroad Company, Intervenor.

No. 15–1069.

United States Court of Appeals, First Circuit.

Oct. 16, 2015.

Mark Bobrowski, with whom Blatman, Bobrowski & Mead LLC was on brief, for petitioners.

Erik G. Light, Attorney, Surface Transportation Board, with whom William J. Baer, Assistant Attorney General, Robert B. Nicholson and Shana Marie Wallace, Attorneys, Department of Justice, Craig M. Keats, General Counsel, and Evelyn G. Kitay, Deputy General Counsel, were on brief, for respondents.

James E. Howard, with whom John A. Mavricos, Jonah M. Temple, Christopher, Hays, Wojcik & Mavricos LLP, Linda J. Morgan, and Nossaman, LLP, were on brief, for intervenor.

Before TORRUELLA, SELYA, and DYK,^* Circuit Judges.

Opinion

DYK, Circuit Judge.

Diana del Grosso, et al. (“petitioners”) petitioned the Surface Transportation Board (“Board”) for a declaratory order that state and local regulations of a facility owned by Grafton & Upton Railroad Company (“G & U”) were not preempted by the Interstate Commerce Commission Termination Act (“ICCTA”), Pub L. No. 104–88, 109 Stat. 803. The Board held that state and local regulations were preempted because the facility was part of “transportation by rail carrier.” 49 U.S.C. § 10501(a)(1). We affirm the Board's decision that the facility was operated by a “rail carrier.” But because the Board relied on an erroneous standard in concluding that the activities at the facility were a part of “transportation,” we vacate and remand.

I.

Under the ICCTA, the Board has jurisdiction over “transportation by rail carrier.” Id. Where the Board has such jurisdiction, it is exclusive. Whether or not the Board is exercising its regulatory authority over the transportation, state and local¹ laws governing such transportation are generally preempted. See id. § 10501(b) (“[T]he remedies provided under this part with respect to regulation of rail transportation are exclusive and preempt the remedies provided under Federal or State law.”); Norfolk S. Ry. Co. v. City of Alexandria, 608 F.3d 150, 157 (4th Cir.2010) ; Green Mountain R.R. Corp. v. Vermont, 404 F.3d 638, 642 (2d Cir.2005) ; City of Auburn v. U.S. Gov't, 154 F.3d 1025, 1030 (9th Cir.1998) ; see also Borough of Riverdale Petition for Declaratory Order, STB Finance Docket No. 33466, 1999 WL 715272, at *4 (S.T.B. Sept. 9, 1999) (preemption even where rail construction project outside Board's regulatory authority). Such preemption is not limited to state and local economic regulation of rail transportation. See N.Y. Susquehanna & W. Ry. Corp. v. Jackson, 500 F.3d 238, 252 (3d Cir.2007) ; Green Mountain, 404 F.3d at 644–45 ; City of Auburn, 154 F.3d at 1031. But see Fla. E. Coast Ry. Co. v. City of W. Palm Beach, 266 F.3d 1324, 1337–39 (11th Cir.2001).

In order for an activity to count as “transportation by rail carrier,” it has to be both “transportation” and operated by a “rail carrier.” Tex. Cent. Bus. Lines Corp. v. City of Midlothian, 669 F.3d 525, 530 (5th Cir.2012). “Transportation” is a broad category that includes any “property, facility, instrumentality, or equipment” connected to “movement ... by rail,” as well as various “services related to that movement.” 49 U.S.C. § 10102(9)(A)-(B). Whether an activity is conducted by a “rail carrier” is a case-by-case factual determination based on, inter alia, how much control a rail carrier is exercising over the activity. See Tex. Cent., 669 F.3d at 530–31 (internal quotation marks, citations omitted). The Board routinely grants declaratory orders as to whether particular activities are preempted, but the ICCTA does not delegate to the Board the determination of whether state and local law is preempted. See 49 U.S.C. § 10501(b).

II.

Here, G & U is a licensed rail carrier that began operations in 1873. It owns a railroad line that extends from North Grafton, Massachusetts, to Milford, Massachusetts. Upton is a town located between Grafton and Milford. In 2008, G & U decided to expand its rail yard in Upton and develop it into a rail-to-truck transloading facility. As a part of that plan, G & U undertook to build a wood pellet facility that would receive wood pellets in bulk from hopper railcars and transfer them, after some processing and bagging, onto trucks. G & U also entered into a Terminal Transloading Agreement with Grafton Upton Railcare LLC (“GU Railcare”), a part of Dana Companies, a group of companies with extensive experience in transloading bulk materials. GU Railcare was neither owned nor operated by G & U. GU Railcare was to operate the transloading services on behalf of G & U.

By the fall of 2011, G & U finished the wood pellet facility. At the facility, a vacuum hose is attached to hopper railcars carrying wood pellets in bulk and sucks the pellets through a system that removes dust from the pellets. The pellets are then moved to silos for temporary storage. Additional dust is then removed from the pellets, and the pellets are conveyed from the silos, placed in forty-pound bags, and stacked onto pallets, fifty bags to a pallet. The pallets are then shrink-wrapped and stored until they are loaded into trucks for final delivery to retail stores.

The Upton Board of Selectmen concluded that the activities at the facility were preempted by the ICCTA, 49 U.S.C. § 10501(b), and did not seek to regulate them. However, on August 1, 2012, petitioners, who live near the facility, sought a declaratory order from the Board that the wood pellet activities were not part of “transportation by rail carrier” under 49 U.S.C. § 10501(b) and that state and local regulations were therefore not preempted. Petitioners complained that the transloading operations caused them harms such as exposure to excess glare, light intrusion, noise, and diminution of property values, and that such harms would be prevented by enforcement of Upton's zoning by-laws, which, for example, restrict a building's height and require special permits for manufacturing facilities, which permits could limit noise and above-ground storage. See, e.g., Town of Upton Zoning By–Law, § 4.2 Table C (height restrictions); id. § 3.1.3 Table A & n. 6 (special permit requirements). The petitioners mounted a two-pronged attack on the railroad's claim of preemption. First, they argued that the wood pellet transloading operations were not “transportation” under the ICCTA because they were manufacturing activities. Second, they argued that GU Railcare was not a “rail carrier” under the statute.

With respect to the second issue, petitioners requested discovery of documents regarding the construction, financing, operation, management, and ownership of the facility in order “to determine the real relationship” between G & U, GU Railcare, and Dana Companies. On January 23, 2013, the Board initiated a declaratory order proceeding but denied the discovery request by petitioners, noting that petitioners had access to G & U's transloading agreement with GU Railcare and its lease agreement for the rail yard, and that G & U had also not explained why discovery or additional documents were needed.

On February 13, 2013, petitioners requested reconsideration of the Board's denial of discovery. Petitioners argued mainly that there was new evidence that “raises significant questions” regarding G & U. The evidence was that G & U was involved in a separate litigation with the town of Grafton, Massachusetts, over a proposed propane transloading facility,² and that evidence as to the relationship between G & U and the operator of the other facility could shed light on the relationship between G & U and the Dana Companies. On May 7, 2013, the Board denied reconsideration. It concluded that the various agreements already submitted were sufficient to determine the issue of whether the activities were being conducted by a “rail carrier,” noting that the Board “is guided [on that issue] by the terms of the agreements between the railroad and the transloader.” It also concluded that the relationship between G & U and a third party involving a different transloading facility was not relevant.

On December 5, 2014, the Board issued a declaratory order. After concluding that the petitioner had standing to raise the preemption issue, the order declared that the Board had exclusive jurisdiction over the transloading activities in G & U's facility because they constituted “transportation” by “rail carrier.” The Board concluded that the vacuuming, screening, bagging, and palletizing of the wood pellets were “transportation” and not “manufacturing” because, although those activities were “not essential” to transporting wood pellets by rail, they “facilitate[d]” such transportation by making it “more efficient.” This was so because the activities allowed G & U to transport the pellets by hopper cars rather than boxcars. The Board also distinguished the activities in question from manufacturing and commercial transactions because they did not “change [the] nature of the product,” even though some of the activities, such as bagging, “may produce some value to the consumer.” The Board also determined that GU Railcare was acting on behalf of G & U in performing the transloading activities, and so a “rail carrier” was doing the transporting. It finally determined that GU Railcare was not a sham set up simply to avoid state and local regulations.

The petitioners sought judicial review. We have jurisdiction pursuant to 28 U.S.C. § 2342. Under the Administrative Procedure Act (“APA”), we will not set aside the Board's determinations unless they are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” or are “unsupported by substantial evidence.” See 5 U.S.C. § 706(2). The APA requires the agency to “articulate a satisfactory explanation for its action including a ...