Law360 - July 28, 2014
In July 2013, the D.C. Circuit ruled that Section 207 of the Passenger Rail Investment and Improvement Act of 2008 ("PRIIA"), under which Amtrak and the Federal Railroad Administration ("FRA") jointly established metrics and standards to measure Amtrak's performance, was an unconstitutional delegation of regulatory power to a private entity (i.e., Amtrak). The court of appeals said "the U.S. Supreme Court has never approved a regulatory scheme that so drastically empowers a private entity in the way §207 empowers Amtrak."1 In its petition for a writ of certiorari, the government2 said the Supreme Court has "not invalidated a federal statute in nearly 80 years on the ground that it impermissibly delegated authority to a private party."3 On June 23, the Supreme Court granted the government's writ of certiorari to review the decision.
The basic legal question is whether Amtrak, already held to be a public entity for purposes of the First Amendment,4 is a private entity for purposes of §207 of PRIIA, which it would need to be for the Court of Appeals decision to stand. For the railroad industry, the case is about whether the metrics and standards (herein "metrics") will survive and be used to measure whether (and how well) host railroads5 adhere to their long-standing statutory obligation to give priority to Amtrak trains and incorporated into the contracts governing Amtrak operations on host railroads. At a time when the railroad network faces capacity constraints, the Supreme Court's decision will be of great interest and importance to Amtrak, host railroads, elected officials, transportation policy makers, states that sponsor Amtrak service and the traveling public.
PRIIA 207 and the Metrics
Section 207(a) of PRIIA provides that "the Federal Railroad Administration and Amtrak shall jointly, in consultation with the Surface Transportation Board, rail carriers over whose rail lines Amtrak trains operate … develop new or improve existing metrics and minimum standards for measuring the performance and service quality of intercity passenger train operations, including cost recovery, on-time performance and minutes of delay, ridership, on-board services, stations, facilities, equipment and other services." 49 U.S.C. §24101 note (Supp. V 2011).
Although primarily designed to evaluate Amtrak's performance, the metrics would have other important applications under PRIIA. First, if Amtrak service falls below minimum standards in the metrics for two consecutive quarters, then upon filing of a complaint by Amtrak (or a state sponsor of Amtrak service or a host railroad), the STB would hold an investigation and could award damages against a host railroad (or provide Amtrak with other relief) if it determined that Amtrak's failure to meet the minimum standards was caused by a host railroad's failure to provide preference to Amtrak passenger trains. 49 U.S.C. §24308(f); see 49 U.S.C. §24308(c). Second, pursuant to PRIIA §207(c), "[t]o the extent practicable" Amtrak and its host railroads are to incorporate the metrics into their access agreements. 49 U.S.C. §24101 note (Supp. V 2011).
In March 2009, FRA and Amtrak issued a draft version of the metrics and sought comments from the other stakeholders identified in Section 207, including host railroads. Host railroads took issue with many aspects of the draft metrics and especially those formulated to measure on-time performance. In May 2010, FRA and Amtrak issued the final version of the metrics.7
AAR Challenge and the District Court Decision
In August 2011, the Association of American Railroads ("AAR") filed suit in the U.S. District Court for the District of Columbia, arguing that Section 207 violated the nondelegation doctrine by placing legislative and rulemaking authority in the hands of a private party (i.e., Amtrak) and the Fifth Amendment's due process clause by vesting the power of the government in interested private parties.8
In May 2012, the district court granted summary judgment in favor of the government on both claims. The court held that Amtrak was a government entity with respect to the due process claim.9 The court noted that Amtrak's status with respect to the nondelegation claim was less clear, but that even if Amtrak was a private entity, Section 207 would survive because the government retained sufficient control over promulgation of the metrics.10 AAR appealed.
D.C. Circuit Decision
In July 2013, the D.C. Circuit reversed, holding that Section 207 "constitutes an unlawful delegation of regulatory power to a private entity."11 The court of appeals based its decision on AAR's unlawful delegation argument.12 First, the court evaluated whether Amtrak's role in the promulgation of the metrics was so significant that it constituted an unlawful delegation. The court noted that delegation to a government agency requires only that Congress prescribe an intelligible principle governing the statute's enforcement, but drew a distinction between agency delegation and delegation to a private party, noting that "[e]ven an intelligible principle cannot rescue a statute empowering private parties to wield regulatory authority." Id. at 670-671.
In the court's view, Amtrak enjoyed authority equal to that of the FRA. If FRA preferred an alternative metric that Amtrak did not prefer, the court said FRA would be "impotent to choose its version without Amtrak's permission." Id. at 671. The court considered, but ultimately rejected, the government's argument that the metrics imposed no liability on any parties and that any award of damages against a host railroad based on the metrics would only come after a separate STB investigation. The court said the metrics "lend definite regulatory force to an otherwise broad statutory mandate" and even though the Amtrak statutory preference predates PRIIA, the metrics would "channel" enforcement of the preference. Id. at 672.
Section 207(d) provided that if the metrics were not completed within 180 days any party involved in the development of the metrics could petition the STB to appoint an arbitrator to assist in resolving disputes regarding the metrics through binding arbitration. Although this did not occur, the court of appeals noted that if Amtrak and FRA had not reached agreement on the metrics, Amtrak could have petitioned the STB to appoint an arbitrator and nothing in the statute would have precluded the STB from appointing a private party as arbitrator. Id. at 673. In other words, "it would have been entirely possible for metrics and standards to go into effect that had not been assented to by a single representative of the government." Id. at 674.
Based on all of the foregoing factors, the court of appeals concluded that if Amtrak were a private party, its role in the promulgation of the metrics would be an unconstitutional delegation. Id. Thus, the court turned to the issue of Amtrak's private party status for purposes of Section 207.
The court of appeals acknowledged that many characteristics of Amtrak supported the government's position that Amtrak was not a private entity, but also noted that Amtrak is by statute operated and managed as a for-profit corporation. Id. at 674-75. With facts on both sides, the court looked at the "functional purposes that the public-private distinction serves when it comes to delegating a regulatory power." Id. at 675. Two things were of most importance to the court — delegating government power to private parties "saps our political system of democratic accountability" and "disinterested government agencies ostensibly look to the public good, not private gain," which makes delegations to private entities "particularly perilous." Id. at 675. The court said "Amtrak may not compete with the freight railroads for customers, but it does compete with them for use of their scarce track." Id. In addition, Section 207 directs Amtrak and its hosts to incorporate the metrics into their operating agreements. Id. at 676.
Finally, the court distinguished Lebron, which held that Amtrak was part of the government for purposes of the First Amendment. The court of appeals noted that the Supreme Court's treatment of Amtrak as a governmental agency for purposes of the First Amendment in Lebron did not dictate the same result with respect to all other constitutional provisions. Id. at 676-77.
Ultimately, the court's conclusion regarding Amtrak's private entity status and its ruling turned on its view of the limits on what Congress can do with a for-profit entity it creates:
While often phrased in terms of an affirmative prohibition, Congress' inability to delegate government power to private entities is really just a function of its constitutional authority not extending that far in the first place. In other words, rather than proscribing what Congress cannot do, the doctrine defines the limits of what Congress can do. And, by designing Amtrak to operate as a private corporation — to seek profit on behalf of private interests — Congress has elected to deny itself the power to delegate it regulatory authority under §207.
Id. at 677 (emphasis in original).
What Lies Ahead?
Both sides will have a lot of ground to cover before the Supreme Court. Judging from the certiorari petition, the government will argue that even if Amtrak is a private entity, government agencies (i.e., FRA and STB) had sufficient control over the development of the metrics and will have control over any enforcement actions against host railroads based on the metrics. To be sure, the government will not concede that Amtrak is a private entity. The government can be expected to directly challenge the court of appeals' distinction of Lebron and to argue again that the structure and purposes of Amtrak make it a public entity for purposes of constitutional nondelegation analysis.
The AAR will of course advocate the reasoning of the court of appeals on the nondelegation claim and alternatively renew its due process argument (urging remand), which won the case at the district court but was not reached by the court of appeals. In fact, since the government will need to respond to AAR's renewed due process argument, we are likely to see a lot of briefing on the due process claim.
There is much to be settled and the metrics, a key component of Congress' most recent effort to improve intercity passenger service, hangs in the balance.
1 Ass'n of Am. R.R. v. Dep't of Transp., 721 F. 3d 666, 671 (D.C. Circuit 2013).
2 The U.S. Department of Transportation, the FRA, DOT Secretary Foxx and FRA Administrator Szabo.
3 Petition for Writ of Certiorari, at 11-12 (March 14, 2014). Found at: http://www.scotusblog.com/case-files/cases/department-of-transportation-v-association-of-american-railroads/
4 Lebron v. National Railroad Passenger Corp., 513 U.S. 374 (1995)("Lebron").
5 The rail carriers over whose rail lines Amtrak trains operate are commonly referred to as the "host" railroads.
6 In addition, if Amtrak service falls below minimum standards for the prescribed period, the STB could initiate an investigation sua sponte. 49 U.S.C. §24308(f).
7 The on-time metrics measure both all-station and end of route arrival, defining on-time as arrival within 15 minutes of the times established in Amtrak's public timetables. The delay metric measures minutes of delay per 10,000 train miles.
8 The AAR, an association representing the interests of large freight railroads (including all of the major host railroads), sought declaratory relief, an order vacating the metrics and injunctive relief.
9 Ass'n of Am. R.R. v. DOT, 865 F. Supp. 2d 22, 29-31 (D.D.C., 2012). The district court relied upon the functional analysis in Lebron.
10 Id. at 26-34.
11 Ass'n of Am. R.R. v. Dep't of Transp., 721 F. 3d 666, 668 (D.C. Circuit 2013).
12 The court of appeals noted that there was some authority for addressing the validity of the delegation under the due process clause, but said its own precedent treated the issue under separation of powers. Id. at 671, n. 3. Thus, the Court never reached the AAR's due process argument, see id. at 677, although the Court veered very close to the due process issue in its discussion of Amtrak's private entity status. See Id. at 675.