N.Y. & Atl. Ry. Co. v. Surface Transp. Bd.

• Decision Date: 15 March 2011
• Docket Number: Docket No. 10–1490–ag.
• Citation: 635 F.3d 66
• Court: U.S. Court of Appeals — Second Circuit
• Parties: NEW YORK & ATLANTIC RAILWAY COMPANY, Coastal Distribution, LLC, Petitioners,v.SURFACE TRANSPORTATION BOARD, and United States of America, Respondents,andPinelawn Cemetery Corporation and Town of Babylon, Intervenors.

635 F.3d 66

NEW YORK & ATLANTIC RAILWAY COMPANY, Coastal Distribution, LLC, Petitioners,

v.SURFACE TRANSPORTATION BOARD, and United States of America, Respondents,andPinelawn Cemetery Corporation and Town of Babylon, Intervenors.

Docket No. 10–1490–ag.

United States Court of Appeals, Second Circuit.

Argued: Sept. 23, 2010.Decided: March 15, 2011.

Ronald A. Lane, (Thomas J. Litwiler, on the brief) Fletcher & Sippel, LLC, Chicago, IL, for Petitioner New York & Atlantic Railway Company.John F. McHugh, New York, NY, for Petitioner Coastal Distribution, LLC.Virginia Strasser, Surface Transportation Board, Washington D.C. (Ellen D. Hanson, General Counsel, Evelyn G. Kitay, Associate General Counsel, on the brief; Philip J. Weiser, Deputy Assistant Attorney General, Robert B. Nicholson, John P. Fonte, Attorneys, Department of Justice, Washington, D.C., on the brief) for Respondents Surface Transportation Board and the United States of America.Howard M. Miller, Bond, Schoeneck & King PLLC, Garden City, NY, for Intervenor Town of Babylon.

Fran M. Jacobs, Duane Morris LLP, New York, NY, for Intervenor Pinelawn Cemetery.Before: POOLER and HALL, Circuit Judges, and KRAVITZ ¹, District Judge.POOLER, Circuit Judge:

This case delineates the power of the Surface Transportation Board (“STB”) to decide what the extent to which the construction and operation of transloading 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, 74 A.D.3d 938, 906 N.Y.S.2d 565 (2d Dept.2010). The Second Department stayed that action to permit Pinelawn to seek a certificate of adverse abandonment from the STB, which would allow Pinelawn to seek to evict the railroad. Id. at 941, 906 N.Y.S.2d 565.

In 2002, Coastal and NYAR entered into an agreement to refurbish the Farmingdale Yard to primarily handle the transloading 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 York seeking to enjoin Babylon's enforcement efforts on the grounds that Babylon's zoning ordinance was preempted under the Interstate Commerce Commission Termination Act of 1995 (“ICCTA”). Coastal Distribution, LLC v. Town of Babylon, No. 05 Civ.2032, 2006 WL 270252 (E.D.N.Y. Jan. 31, 2006). The district court granted Coastal a preliminary injunction barring enforcement action by Babylon, on the grounds that Coastal demonstrated a likelihood of success in showing the transload facility came within the STB's exclusive jurisdiction. Id. at *4–10. This Court upheld the injunction, finding no clear error, but modified the injunction to permit the parties to bring the matter to the STB for a determination of whether the transload facility did, in fact, fall within the STB's exclusive jurisdiction. Coastal Distribution, LLC v. Town of Babylon, 216 Fed.Appx. 97, 103 (2d Cir.2007).

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 Farmingdale transload facility was not within the scope of its jurisdiction. Pinelawn Cemetery, STB Finance No. 35057, 2008 WL 275697 (STB served Feb. 1, 2008) (“ Babylon I ”). The STB found that its exclusive 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 operation.” Id. at *3.

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 “[u]nder 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, 2008 WL 4377804 (STB served Sept. 26, 2008) (“ Babylon II ”). In moving for reconsideration, Coastal and NYAR relied heavily on what they deemed “new evidence”—a veto statement by then-Governor Eliot Spitzer expressing a preference for federal jurisdiction because absent preemption, the rail facility would close, forcing more traffic onto local roads. Id. at *3. The STB found this did not constitute new evidence, as it was available to Coastal and NYAR when Babylon I was under consideration. Id. at *3–4. Petitioners also urged the STB to find it could exercise exclusive jurisdiction over a rail facility, regardless of ownership. The STB declined to review its earlier ruling. Id. at *5.

On October 10, 2008—a few weeks after Babylon II was served on the parties— Babylon and Pinelawn returned to the district court and sought to vacate the preliminary injunction. In opposing that motion, NYAR and Coastal represented to the district court that the two had entered into an amended agreement (the “Amended Agreement”) that placed them into a principal-agency relationship. NYAR and Coastal also argued that the newly passed Clean Railroads Act of 2008 (“CRA”), 49 U.S.C. § 10909, preempted Babylon's zoning ordinances. The CRA requires that solid waste rail transfer facilities follow the same state and federal laws and regulations that apply to non-railroads, except that land use regulations may not be applied to existing facilities.

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, 2009 WL 3329242 (STB served October 16, 2009) (“ Babylon III ”). The STB determined that the Amended Agreement did not create a principal-agency relationship, because (1) NYAR continued to have only limited influence over transloading fees; (2) NYAR lacked control over the operation of the Facility; and (3) Coastal alone provided and billed for the transloading services. Id. at *4–5. The STB also held that the CRA did not apply to the Facility because the Facility was not, “owned or operated by or on behalf of a rail carrier.” Id. at *6 (internal quotation marks omitted).

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...