Court Signals Discomfort With California’s Hazmat Fee on Railroads

PASADENA, Calif. (CN) – A Ninth Circuit panel indicated Tuesday it may affirm a preliminary injunction that bars California from levying a fee on trains carrying hazardous materials designed to reimburse the state for rail accidents.

However, the court’s three-judge panel suggested the fee would be permissible if the state changes the way it is collected.

“I’m very aware of the problems we’ve had with rail; I’m very sympathetic to attempts to solve the problem,” Circuit Judge William Fletcher, a President Bill Clinton appointee, told an attorney for the state. “I’m not sure you can do it the way you did it, though.”

BNSF Railway Company and Union Pacific Railway Company sued California in August 2016 over the fee, implemented the previous June through California Senate Bill 84. The law requires railroads to collect a $45 per-railcar, per-trip fee from customers hauling hazardous materials, such as ethanol and crude oil, to pay for emergency response planning, training and equipment.

The rail companies claimed that SB 84 discriminated against railroads by charging the fee to them but not trucking companies, even though truck accidents are more frequent.

According to them, the Interstate Commerce Commission Termination Act (ICCTA) and the Hazardous Materials Transportation Act (HMTA) prohibit California from imposing a fee on trains and not trucks, even though both carry hazardous materials.

California countered that a train can carry more hazardous material than a truck, making a train accident more harmful. It also said its emergency response system for hazardous-material trucking accidents is adequate, but its emergency response system for rail accidents is not.

U.S. District Judge Richard Seeborg granted BNSF and Union Pacific’s request for a preliminary injunction last year, finding they were likely to succeed in invalidating SB 84’s funding mechanism requiring them to collect fees from their customers, and that the mechanism is pre-empted by the Interstate Commerce Commission Termination Act. He also concluded that SB 84 discriminates against rail in favor of trucking, in violation of both acts.

Pushing for reversal Tuesday, California Deputy Attorney General Linda Gandara told the three-judge panel that nothing in the Interstate Commerce Commission Termination Act prevents SB 84’s funding mechanism. She said that fee-collection mechanisms are “typically left to the states.”

Addressing the railroads’ discrimination argument, Gandara explained that SB 84 isn’t discriminatory because California was justified in enacting it.

Gandara cited a growing amount of hazardous materials being transported into California, and the state’s court brief cites a statistic claiming that more crude oil was spilled in rail incidents in 2013 than in the nearly four decades before that. The state added that a 2013 rail accident in Quebec killed 47 people when 63 tank cars carrying crude oil exploded.

“The definition of discrimination is treating similarly situated entities differently without adequate justification,” she said. “And we believe, as we expressed in our briefs here, that the state has indicated an adequate justification for the fee, and this fee is based on the state’s concern about growing amounts of hazardous materials transported into California, the possibility of a serious event that California simply was not ready to address.”

Raymond Atkins, a lawyer with Sidley Austin in Washington representing BNSF and Union Pacific, said SB 84 is in fact discriminatory.

“They speak at great length about the risk of crude oil, and there’s been a rise in transportation of crude oil not only in California but throughout the country,” he said. “But as we told the district court, that accounts for 2 percent of the $20 million they’re seeking to raise from railroads. If you had a company that came to you with some sort of clear discrimination against their employees, you wouldn’t let them justify it by saying that ‘some 2 percent of our employees creates a problem, and we’re going use that as justification to discriminate against them all.'”

However, Atkins called the discrimination argument an “alternative theory,” and clarified that his clients’ main concern is SB 84’s funding mechanism, not the fee itself.

“That falls right in the sweet spot of the ICCTA’s categorical pre-emption of state interference with the economic relationship between the railroads and their customers,” he said.

Fletcher asked the railroads’ attorney whether the fee would “pass your test” if it were charged directly to the shipper instead of the railroads. Atkins said yes.

Circuit Judge Sandra Ikuta, a President George W. Bush appointee, and Chief U.S. District Judge Nancy Freudenthal, sitting by designation from the District of Wyoming and a President Barack Obama appointee, joined Fletcher on the panel.


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