Padgett v. Surface Transportation Board

United States Court of Appeals
For the First Circuit

No. 14-2067

BROOK A. PADGETT;
CRAIG DAUPHINAIS; JENNIFER THOMAS; BRUCE W. SPINNEY,
AS THEY ARE MEMBERS OF THE BOARD OF SELECTMEN OF THE
TOWN OF GRAFTON,

Petitioners,

v.

SURFACE TRANSPORTATION BOARD; UNITED STATES,

Respondents,

GRAFTON & UPTON RAILROAD COMPANY,

Intervenor.

PETITION FOR REVIEW OF A FINAL ORDER OF
THE SURFACE TRANSPORTATION BOARD

Before

Torruella, Selya, and Dyk,*
Circuit Judges.

Ginny Sinkel Kremer, Grafton Town Counsel, with whom Blatman,
Bobrowski & Mead, LLC, were on brief, for petitioners.
Charles H.P. Vance, 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.
John A. Mavricos, with whom Jonah M. Temple, Christopher,
Hays, Wojcik & Mavricos, LLP, James E. Howard, Linda J. Morgan, and
Nossaman, LLP, were on brief, for intervenor.
David F. Hassett and Hassett & Donnelly, P.C., on brief for

*
Of the Federal Circuit, sitting by designation.
Congressman James P. McGovern, amicus curiae in support of
petitioners.
Jonathan S. Springer and Springer Law Office, PLLC, on brief
for Propane Gas Association of New England, amicus curiae in
support of respondents and intervenor.

October 16, 2015

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 DYK, Circuit Judge. The Town of Grafton (the “Town” or

“Grafton”) petitions for judicial review a declaratory order of the

Surface Transportation Board (“Board”) finding that 49 U.S.C.

§ 10501(b) preempts state and local regulations with respect to

Grafton & Upton Railroad Company’s (“G&U”) liquid petroleum gas

transloading facility (the “facility”). We deny the petition.

I.

As described in a companion case decided today, Del

Grosso v. Surface Transportation Board, No. 15-1069, slip op. at 3

(1st Cir. Oct. 16, 2015), under the Interstate Commerce Commission

Termination Act (“ICCTA”), Pub. L. No. 104-88, 109 Stat. 803, “the

Board has jurisdiction over transportation by rail carrier.” 49

U.S.C. § 10501(a)(1); see also Fayard v. Ne. Vehicle Servs., LLC,

533 F.3d 42, 46 (1st Cir. 2008). This jurisdiction is exclusive,

and the ICCTA preempts “State law” governing “regulation of rail

transportation”:

The jurisdiction of the Board over—(1) transportation by
rail carriers . . . and facilities of such carriers; and
(2) the construction, acquisition,
operation . . . of . . . facilities, even if the tracks
are located, or intended to be located, entirely in one
State, 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.

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49 U.S.C. § 10501(b). The question here is whether state and local

regulation of G&U’s propane (or liquid petroleum gas) transloading

facility is preempted.

II.

G&U owns and operates a rail line extending approximately

sixteen miles between a CSX Transportation, Inc. (“CSXT”) line in

North Grafton, Massachusetts, and another CSXT line in Milford,

Massachusetts. In January 2012, G&U purchased a parcel of land in

North Grafton, located immediately adjacent to its rail line and

existing rail yard and within a “Water Supply Protection Overlay

District” under the Town’s zoning regulations. G&U plans to

construct a transloading facility on the parcel for transferring

propane received by tank car in North Grafton to storage tanks and

then to trucks for delivery across New England. In December 2012,

G&U notified the Town of its intent to deliver four 80,000-gallon

propane storage tanks to its rail yard to be used in constructing

the facility. In response, the Town issued a cease and desist

order requiring G&U to halt construction and filed a complaint in

Massachusetts state court seeking to bar the construction, arguing

that construction of the facility would violate state and local

law.

The state and local laws at issue are zoning and

permitting regulations. Massachusetts law provides that “[n]o

person shall construct, maintain or use any tank or container of

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more than ten thousand gallons’ capacity, for the storage of any

fluid other than water, unless the same is located underground,

without first securing a permit.” Mass. Gen. Laws ch. 148, § 37.

The Grafton Zoning By-Law (“ZBL”) lists the following as

“specifically prohibited” uses: “Storage, transport or sale of

petroleum or other refined petroleum products in quantities greater

than normally associated with household use . . . .” ZBL

§ 7.4.C.9. The Town’s zoning regulations also require a “special

permit” for “any use involving secondary usage or storage of toxic

or hazardous materials in quantities greater than normally

associated with household use” and for “underground fuel or other

storage tanks, including any tanks or collection pits.” ZBL

§ 7.4.D.1; id. § 7.4.D.7. G&U argued that these state and local

regulations were preempted and removed the case to federal district

court. That court determined it lacked jurisdiction and remanded

the case back to the state court.

On June 12, 2013, the state court enjoined the delivery

of the storage tanks, directed G&U to file a petition for a

declaratory order with the Board to determine whether § 10501(b)

preempts the application of state and local zoning and permitting

ordinances, and stayed the state court proceedings pending the

outcome of the Board proceeding. G&U filed a petition with the

Board on July 24, 2013, and the Board instituted a declaratory

order proceeding on January 24, 2014.

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 Before the Board, the Town argued that G&U’s activities

did not constitute transportation by rail carrier because of the

involvement of several companies (the “Propane Companies”) with

which G&U had previously contracted for the financing,

construction, and operation of the facility. The Town’s theory was

that the facility would be constructed and operated by the Propane

Companies (not rail carriers) rather than by G&U (a rail carrier).

In a September 17, 2014, decision, the Board found that the state

storage tank permit requirement and the Town’s ordinances were

preempted by § 10501(b) because G&U’s construction and operation of

the facility constituted “transportation by rail carrier.” 49

U.S.C. § 10501(a). The Board concluded, based on G&U’s July 2013

termination of the agreements with the Propane Companies, that G&U

“can and will hire the people with the necessary expertise to

properly operate the facility on its own” and that the record

adequately demonstrated that the facility will be an integral part

of G&U’s operations as a rail carrier. The Board further found

that state fire safety and construction codes would still apply to

the construction and operation of the facility as long as they were

applied in a non-discriminatory manner. The Board concluded by

stating that “[t]his action will not significantly affect either

the quality of the human environment or the conservation of energy

resources.”

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 The Town petitions for judicial review. We have

jurisdiction over final orders of the Board pursuant to 28 U.S.C.

§ 2342. See Citizens Awareness Network, Inc. v. United States, 391

F.3d 338, 346 (1st Cir. 2004). Under the Administrative Procedure

Act, a “reviewing court shall . . . hold unlawful and set aside

agency action, findings, and conclusions found to

be . . . arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law.” 5 U.S.C. § 706(2). The

Board’s decision is not arbitrary or capricious if there is a

“rational basis” for the decision based on facts in the record.

Granite State Concrete Co. v. Surface Transp. Bd., 417 F.3d 85,

91–92 (1st Cir. 2005) (citation omitted). In the companion to this

case, we established that we do not give Chevron U.S.A., Inc. v.

Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), deference to the

Board’s determination of preemption, but we do give Skidmore v.

Swift & Co., 323 U.S. 134 (1944), deference, and we defer to the

Board’s factual findings. See Del Grosso, slip op. at 11.

III.

At the outset the Town argues that the ICCTA preempts

only state and not local regulation. This argument is meritless.

The ICCTA’s use of “State” clearly encompasses both state and local

law. See Atl. Coast Line R.R. Co. v. City of Goldsboro, 232 U.S.

548, 555 (1914) (“A municipal by-law or ordinance, enacted by

virtue of power for that purpose delegated by the legislature of

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the state, is a state law within the meaning of the Federal

Constitution.”); see also City of Saint Louis v. Paprotnik, 485

U.S. 112, 125 (1988) (“[S]tate law . . . may include valid local

ordinances and regulations . . . .”). Otherwise, the express

preemption of state law would be completely ineffective. It is

well established that the ICCTA preempts local as well as state

regulation. See, e.g., Tex. Cent. Bus. Lines Corp. v. City of

Midlothian, 669 F.3d 525, 530 (5th Cir. 2012) (“Congress intended

to preempt state and local laws that come within the Board’s

jurisdiction.” (emphasis added)); Norfolk S. Ry. Co. v. City of

Alexandria, 608 F.3d 150, 160 (4th Cir. 2010) (city ordinances

preempted by ICCTA); City of Auburn v. U.S. Gov’t, 154 F.3d 1025,

1031 (9th Cir. 1998) (“We believe the congressional intent to

preempt this kind of state and local regulation of rail lines is

explicit in the plain language of the ICCTA and the statutory

framework surrounding it.” (emphasis added)).

“Determining whether the ICCTA preempts a state or local

law is a two-step inquiry. First, the law must seek to regulate

‘transportation,’”2 and “second, that transportation must be

2
The ICCTA broadly defines “transportation” to include a
“facility, instrumentality, or equipment of any kind related to the
movement of passengers or property, or both, by rail,” and
“services related to that movement, including receipt, delivery,
elevation, transfer in transit, refrigeration, icing, ventilation,
storage, handling, and interchange of passengers and property.” 49
U.S.C. § 10102(9). The facility here provides “storage, handling,
and interchange of . . . property,” id., and therefore clearly
satisfies the first step of the § 10501(b) inquiry. See Green

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conducted ‘by a rail carrier.’” Tex. Cent., 669 F.3d at 530; see

also, e.g., Norfolk, 608 F.3d at 157–58; Fla. E. Coast Ry. Co. v.

City of W. Palm Beach, 266 F.3d 1324, 1331 (11th Cir. 2001).

“Whether a particular activity constitutes transportation by rail

carrier under section 10501(b) is a case-by-case, fact specific

determination” based on a series of factors including “(1) whether

the rail carrier holds out transloading as part of its business,

(2) the degree of control retained by the [rail] carrier, (3)

property rights and maintenance obligations, (4) contractual

liability, and (5) financing.” Tex. Cent., 669 F.3d at 530–31

(internal quotation marks, citations omitted).

The Town challenges the Board’s finding that the facility

constituted transportation by rail carrier because G&U failed to

establish that it would actually operate the facility. But there

is no basis for reversing the Board’s finding that G&U would

operate the proposed facility. The Board properly relied on

evidence submitted by G&U, including the relevant contracts and

termination agreements with the Propane Companies, and verified

statements from G&U’s fire safety consultant, G&U’s president and

CEO, and G&U’s vice president of business development. There is no

Mountain R.R. Corp. v. Vermont, 404 F.3d 638, 642 (2d Cir. 2005)
(“Certainly, the plain language [of the ICCTA] grants the
Transportation Board wide authority over the transloading and
storage facilities undertaken by Green Mountain.”); see also N.Y.
Susquehanna & W. Ry. Corp. v. Jackson, 500 F.3d 238, 248 (3d Cir.
2007).

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evidence that G&U lacked the ability to finance, construct, and

operate the facility without the significant involvement of third

parties. We appropriately defer to the Board’s factual findings.

See Del Grosso, slip op. at 12. Whatever role the presumption

against preemption may play in the analysis under the statute, we

are confident it does not have the effect of overcoming deference

to the Board’s factual findings.

Alternatively, the Town argues that the Board erred in

denying discovery on whether the facility was operated by G&U.

While Board regulations allow parties to obtain discovery

“regarding any matter, not privileged, which is relevant to the

subject matter involved in a proceeding,” 49 C.F.R.

§ 1114.21(a)(1), the Town neither sought discovery from G&U nor

filed a motion to compel such discovery. Understandably, the Board

did not address this discovery issue. In any event, the Town has

not shown that such discovery was necessary, given the Town’s

access to the relevant contractual documents. See Del Grosso, slip

op. at 19. The mere fact that G&U reorganized its operations to

shift responsibility for the financing and operation of the

facility from the Propane Companies to itself is not a basis for

discovery.

IV.

While regulation of railroad transloading facilities is

generally preempted by the ICCTA, Del Grosso, slip op. at 3, the

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Town belatedly argues that preemption is not applicable to health

and safety regulations. In this connection, it relies on the

presumption against preemption and the general rule that

traditional police power regulation is not preempted. See, e.g.,

Norfolk, 608 F.3d at 158–60 & n.12; Green Mountain, 404 F.3d at

643. But as the Town acknowledges, “[t]he issue before the [Board]

was whether G&U had demonstrated that the proposal as set forth

would constitute ‘transportation’ undertaken ‘by a rail carrier’

within the meaning of § 10501(b).” The Town did not raise before

the Board the argument that the ICCTA did not preempt health and

safety regulations.3

The failure to raise an argument before an agency

constitutes a waiver of that argument on judicial review. See

Lopez v. Holder, 740 F.3d 207, 211 n.4 (1st Cir. 2014) (“[W]e are

barred from considering [arguments] because they were not presented

to the agency.”); Mazariegos-Paiz v. Holder, 734 F.3d 57, 62 (1st

Cir. 2013) (“Were the court free to delve into the merits of issues

not presented to the agency, it would effectively usurp the

3
The Town argues that it raised the presumption against
preemption argument before the Board, relying on a brief reference
in a proposed ruling of law that had been submitted to the district
court and was attached to the Town’s reply brief before the Board.
But the phrase “presumption against preemption” appears nowhere in
the Town’s briefing before the Board, and this single reference in
a filing to another court attached as an exhibit to a reply brief
is insufficient to “forcefully present[]” an argument for agency
consideration. Vt. Yankee Nuclear Power Corp. v. Nat. Res. Def.
Council, Inc., 435 U.S. 519, 553–54 (1978).

11
agency’s function.”); see also Vt. Yankee Nuclear Power Corp. v.

Nat. Res. Def. Council, Inc., 435 U.S. 519, 553–54 (1978)

(requiring arguments be presented to an agency in a manner that is

not “cryptic and obscure”). Because the Town failed properly to

raise the health and safety argument before the agency, we decline

to address it for the first time.

V.

The Town also argues, for the first time in this

proceeding, that the Board violated the National Environmental

Policy Act (“NEPA”), 42 U.S.C. § 4321 et seq., by failing to

conduct any analysis of the environmental aspect of its decision.

NEPA applies to “major Federal actions significantly affecting the

quality of the human environment.” 42 U.S.C. § 4332(C). This

court has summarized NEPA’s requirements as follows:

[NEPA] obligates agencies . . . to evaluate the
environmental impacts of its proposed actions. To comply
with NEPA, the [agency is] first required to determine
whether [the proposed project] would have a significant
environmental impact. A detailed environmental impact
statement (“EIS”) is required whenever proposed actions
will “significantly affect the quality of the human
environment.” If uncertain about impact, the agency may
start with a less detailed Environmental Assessment
(“EA”). If the EA finds a significant impact, a full EIS
must be prepared; if not, the agency makes a “Finding of
No Significant Impact” (“FONSI”), which exhausts its
obligation under NEPA.

Sierra Club v. Wagner, 555 F.3d 21, 24 (1st Cir. 2009) (citations

omitted). The Town argues that NEPA applies here because the

Board’s preemption decision constitutes a “major Federal action,”

12
as G&U could not construct the facility absent the Board’s

preemption determination. According to the Town, the Board’s

statement that “[t]his action will not significantly affect either

the quality of the human environment or the conservation of energy

resources” constitutes a FONSI, which was produced without the

preparation of an Environmental Assessment, in violation of NEPA.

The Board responds that NEPA is inapplicable because the

declaratory order here is not a “major Federal action,” as neither

federal funding nor Board licensing was involved, relying on this

court’s holding that the test for major federal action under NEPA

is “whether federal approval is the prerequisite to the action

taken by the private actors and whether the federal agency

possesses some form of authority over the outcome.” Mayaguezanos

por la Salud y el Ambiente v. United States, 198 F.3d 297, 302 (1st

Cir. 1999).

The Board is correct that NEPA does not apply to its

declaratory order, because the order was not a “major Federal

action” under 42 U.S.C. § 4332(C). The Board made a legal

determination concerning preemption of the Town’s zoning and

permitting ordinances. The Board did not provide federal funds,

approve or license the transload facility, or otherwise manifest

“indicia of control” over G&U that would be sufficient to establish

a “major Federal action.” Mayaguezanos, 198 F.3d at 302.

Moreover, declaratory orders are categorically exempted from

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environmental documentation requirements under the Board’s NEPA

regulations absent “extraordinary circumstances.” 49 C.F.R. §

1105.6(c) (“No environmental documentation will normally be

prepared . . . for the following actions . . . (iii) [d]eclaratory

orders . . . .”). The petitioners have failed to demonstrate any

“extraordinary circumstances” that could overcome the categorical

exemption. 40 C.F.R. § 1508.4. Therefore, petitioners have not

established that the Board violated NEPA.

We note, however, that since the Board’s view is that

such declaratory orders are not subject to NEPA, there is no reason

for its gratuitous statement, apparently a “standard environmental

disclaimer . . . found in virtually all [Board] decisions,” about

the lack of an environmental impact. Such boilerplate disclaimers

do nothing but foster confusion.

PETITION DENIED

Costs to respondents and intervenor.

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