Texas Cent. Bus. Lines Corp.. v. City of Midlothia

• Decision Date: 02 February 2012
• Docket Number: No. 10–11041.,10–11041.
• Citation: 669 F.3d 525
• Parties: TEXAS CENTRAL BUSINESS LINES CORPORATION, Plaintiff–Appellee Cross–Appellant, v. CITY OF MIDLOTHIAN, a Municipal Corporation, Defendant–Appellant Cross–Appellee, v. MAALT L.P.; Texas Properties Trust, Third Party Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

669 F.3d 525

TEXAS CENTRAL BUSINESS LINES CORPORATION, Plaintiff–Appellee Cross–Appellant,

v.CITY OF MIDLOTHIAN, a Municipal Corporation, Defendant–Appellant Cross–Appellee,

v.MAALT L.P.; Texas Properties Trust, Third Party Defendants–Appellees.

No. 10–11041.

United States Court of Appeals, Fifth Circuit.

Feb. 1, 2012.As Revised Feb. 2, 2012.

Michael Calvin Wright (argued), Russell & Wright, P.L.L.C., John J. Reenan, Winstead, P.C., Dallas, TX, David Fowler Johnson, Winstead, P.C., Fort Worth, TX, for Plaintiff–Appellee Cross–Appellant.

Terry D. Morgan (argued), Terry Morgan & Associates, P.C., Dallas, TX, James William Morris, Jr., David L. Paschall, Goins, Underkofler, Crawford & Langdon, L.L.P., Dallas, TX, for Defendant–Appellant Cross–Appellee.

James Lanter, Lanter Westermann, P.C., Fort Worth, TX, Paul Oliver Wickes (argued), Wickes Law, P.L.L.C., Plano, TX, for Third Party Defendants–Appellees.Scott N. Houston, Gen. Counsel, Texas Municipal League, Austin, TX, for Amici Curiae.Appeals from the United States District Court for the Northern District of Texas.

Before JONES, Chief Judge, and STEWART and SOUTHWICK, Circuit Judges.

LESLIE H. SOUTHWICK, Circuit Judge:

Texas Central Business Lines is a terminal and switching railroad operating in the City of Midlothian, Texas. In the fall of 2008, the railroad endeavored to expand its operations with two new projects. The City opposed that expansion, claiming it violated several municipal ordinances. In response, the railroad brought a declaratory judgment action alleging that a federal statute preempted all City ordinances that affect its transloading operations. Transloading is the transfer of commodities between rail cars and trucks, a process used when the ultimate destination of a commodity is not served by a railroad. This is an appeal from the district court's ruling that all except two of the City's requirements were preempted.

We conclude that all efforts by the City to regulate activities that are involved with what is called the Silo Project are preempted. On the other hand, we determine that uses of other parts of the property involved in this litigation were not shown on this record to be subject to preemption. Accordingly, we AFFIRM in part, REVERSE in part, and REMAND.

FACTUAL AND PROCEDURAL HISTORY

Plaintiff Texas Central Business Lines (TCB) operates as a railroad common carrier on a line of trackage in Midlothian, Texas. Since 2002, TCB has been in the business of transloading on various portions of a 600–acre industrial park owned by Texas Properties Trust. MAALT, L.P., is a trucking company servicing the oil and natural gas industry. It provides transloading services for sand owned and shipped by Halliburton Energy Services, in Midlothian and in southeast Oklahoma.

At first, TCB transloaded exclusively on 20 acres. Then, on September 1, 2008, TCB acquired a leasehold from Texas Properties Trust for a total of 243 acres. Some of the additional land would facilitate a transloading expansion that is at the center of this litigation. Halliburton experienced increased demand for the sand (referred to as “frac sand”) used in hydraulic fracturing (commonly known as “fracking”) at its natural gas wells.¹ TCB, MAALT, and Halliburton entered into an agreement to construct and operate a silo-elevation facility to replace a facility that handled transloading by conveyor belt.

To this end, from 2008 to 2009 a “Silo Project” and a “North End Loop” were constructed adjacent to the 20–acre transloading site. The Silo Project consists of twelve large silos in a three-by-four array, a rail spur, and a sand pit that can accommodate the frac sand cargo from two rail cars, an elevator mechanism to lift the sand into a silos, and a truck scale. In addition, there is a small office as well as roadways for trucks to approach the scales and to leave the facility. TCB constructed the roads and rail lines that service the project. It also owns the cement foundation underneath the silos, as well as the rail spur and the access roads. MAALT constructed the silos, which are movable personal property, and other project features. Halliburton has no ownership interest, and neither it nor MAALT has a leasehold. The entire Silo Project, which accounts for 85 percent of TCB's business, is concentrated on four acres.

Much of the remaining 243 acres leased by TCB is undeveloped. In fact, all of TCB's transloading activity aside from the Halliburton frac sand operations continues exclusively on the originally leased 20 acres. The North End Loop consists of four lines of track.² That track leads to the Silo Project, but also extends beyond it establishing a link with TCB's other transloading activities. No track is dedicated for a given customer.

Throughout construction of the Silo Project and the North End Loop, the City expressed its view that MAALT and TCB were in violation of various of its substantive and procedural ordinances. This case began when TCB filed suit to enjoin the City, under the preemptive force of the Interstate Commerce Commission Termination Act (ICCTA), from enforcing any ordinances against it. 49 U.S.C. § 10101 et seq. Those include: (1) a zoning ordinance that disallows TCB's silo operations as an unauthorized land use and imposes a height restriction on the leasehold (Ordinance No. 89–13 as amended by 2008–16 and 2008–31), (2) a grading ordinance setting a maximum slope for rail embankments and roads (Ordinance No. 2004–15), (3) a paving requirement contained in the City's standard construction details (Ordinance No. 2004–19), and (4) a flood plain ordinance (Ordinance No. 2005–61).³

The City counterclaimed on the issue of preemption and brought claims for the purported violations of its ordinances. It also asserted third-party claims against the property owner—Texas Properties Trust—and against MAALT. The City sought injunctive relief and civil penalties against all the parties.

After a bench trial, the district court held all of the City's ordinances preempted except for the paving requirement, flood plain, and grading ordinances. It dismissed the City's claims and entered judgment. The City timely appealed, and TCB timely cross-appealed arguing that the ICCTA preempted all of the applicable regulations.

DISCUSSION

The preemptive effect of the ICCTA is a question of law that we review de novo. Franks Inv. Co. v. Union Pac. R.R. Co., 593 F.3d 404, 407 (5th Cir.2010) (en banc). Because of the presumption against preemption, the party contending that preemption applies has the burden of persuasion. Elam v. Kansas City So. Ry. Co., 635 F.3d 796, 802 (5th Cir.2011). Yet, that presumption “applies with less force when Congress legislates in a field with ‘a history of significant federal presence’ ” such as railroads. Id. at 804 (quoting United States v. Locke, 529 U.S. 89, 108, 120 S.Ct. 1135, 146 L.Ed.2d 69 (2000)). Factual findings by the district court are accepted unless clearly erroneous. See Fed.R.Civ.P. 52(a)(6).

“When a federal law contains an express preemption clause,” it is “the plain wording of the clause, which necessarily contains the best evidence of Congress' preemptive intent.” Chamber of Commerce of the U.S. v. Whiting, ––– U.S. ––––, 131 S.Ct. 1968, 1977, 179 L.Ed.2d 1031 (2011) (quotation marks and citation omitted). “If a state law is not expressly preempted by the ICCTA, it still may be impliedly preempted if, as applied to a particular case, it has ‘the effect of unreasonably burdening or interfering with rail transportation.’ ” Elam, 635 F.3d at 805 (quoting Franks, 593 F.3d at 414).

In the ICCTA, Congress established the Surface Transportation Board (“Board” or STB). Congress intended to preempt state and local laws that come within the Board's jurisdiction. See Franks, 593 F.3d at 406–07. The Board has jurisdiction over “transportation by rail carriers.” 49 U.S.C. § 10501(b)(1). Determining whether the ICCTA preempts a state or local law is a two-step inquiry. First, the law must seek to regulate “transportation,” and second, that transportation must be conducted “by a rail carrier.”

I. Applicability of the Federal Statute

The ICCTA defines transportation as “services related to ... movement” by locomotive “including receipt, delivery, elevation, transfer in transit, refrigeration, icing, ventilation, storage, handling, and interchange of passengers and property.” Id. § 10102(9). As noted, this case involves a category of industrial activity known as transloading. Of preliminary concern then, is whether the statutory term “transportation” encompasses transloading. This inquiry need not detain us long.

The undisputed facts of this case are that sand arrives in rail cars traveling on interstate railroad lines operated by the Burlington Northern Santa Fe and Union Pacific railroads. From there, the rail cars switch onto a short stretch of railroad track that leads to the Silo Project. At that point, the sand exits into a pit through ports on the cars, is elevated, and is later off-loaded onto trucks that carry the sand to natural-gas wells at distant locations. This activity satisfies the coverage of the statute as it concerns the “elevation” and also the “storage, handling, and interchange of ... property” involving the movement of a locomotive. Id. § 10102(9). Though authority is hardly necessary for this indisputable point, authority is available. See, e.g., Norfolk So. Ry. Co. v. City of Alexandria, 608 F.3d 150, 158 (4th Cir.2010); N.Y. Susquehanna & W. Ry. Corp. v. Jackson, 500 F.3d 238, 248 (3d Cir.2007); Green Mountain R.R. Corp. v. Vermont, 404 F.3d 638, 642 (2d Cir.2005).

Having determined that transloading qualifies as rail transportation, we now must answer whether the particular transloading that is the subject of this appeal is “by a rail carrier,” here TCB.⁴

II. Preemption Under the ICCTA

“Whether a particular activity constitutes transportation by rail carrier under section 10501(b) is a case...